Short Strangles: Premium on Both Sides, Risk on

A short strangle sells an out-of-the-money put and an out-of-the-money call on the same underlying and expiration. It collects more premium than a one-sided short option, but it accepts risk in both directions.

Prepared by Farland Capital Education Team · Educational methodology

The exposure

The short put creates downside purchase obligation.
The short call creates upside delivery obligation and can carry theoretically unlimited loss if uncovered.
The combined position is highly sensitive to volatility and large price moves.

Why traders use strangles

To collect premium from both sides of the distribution
To express a view that realized movement will be smaller than what option prices imply
To create a broader initial profit zone than a single short option

Why sizing matters

Undefined-risk strategies can consume much more capital during a volatility event than their initial buying-power requirement suggests.
A portfolio of short strangles can become extremely correlated during a broad market shock.

Not a beginner default

Understanding assignment, margin, gamma, volatility, liquidity and active risk management should come before using uncovered two-sided exposure.

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Educational purposes only. This page is not individualized investment advice or a recommendation to use any security or strategy. Options involve risk and are not suitable for all investors.