Strangle

A strangle is an options position that combines an out-of-the-money call and an out-of-the-money put with the same expiry but different strikes — bought to bet on a very large move in either direction, or sold to collect premium while the underlying stays inside the two strikes. It is the straddle’s wider sibling: because both options are OTM, a short strangle collects less premium than a short straddle but gives the market more room before losses begin.

Example

BANKNIFTY trades at 57,000. A trader sells the 58,000 call for ₹180 and the 56,000 put for ₹165 — combined premium ₹345, or 345 × 35 = ₹12,075 credit per lot. At expiry the position keeps the full credit if BANKNIFTY settles between 56,000 and 58,000; break-evens sit at roughly 55,655 and 58,345 (strikes ± combined premium). Outside those, losses are unlimited, so sellers pair the position with a combined-premium or per-leg stop and defined exit times. Hypothetical numbers; margins apply and tail risk is real.

Strike selection is the strategy’s main dial — by fixed distance from spot, by option delta (for example ~0.15 delta on each side), or by premium collected.

Why it matters

Short strangles trade a higher win rate for occasional large losses: many small credits, punctuated by the trending week that blows through a strike. Whether the arithmetic survives depends entirely on stop discipline and regime filters like India VIX — which is precisely what multi-year backtesting across quiet and violent periods is for. A strangle judged on six calm months is a coin whose tails you haven’t seen.

In INDfolio AI, strangles can be defined with delta- or distance-based strike rules and tested on NSE options history — see Options backtesting.