What Is a Short Strangle?

By Matthew DiLallo – Updated Apr 17, 2025 at 12:08 AM EST

Key Points

A short strangle involves selling a call and a put option on the same stock with different strike prices.
Maximum profit from a short strangle is the total options premium received.
Risks include unlimited losses with an uncovered strangle and forced stock transactions with a covered one.
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A short strangle is an options trading strategy. It involves selling a call option and a put option on the same underlying stock with the same expiration date. A short strangle enables investors to try to profit from a stock's volatility through the options premium income they received in the trade.

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A person looking at a chart on a mobile phone. — Image source: Getty Images.

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An uncovered strangle (i.e., where the investor doesn't own at least 100 shares of the underlying stock or have enough cash to cover their puts) can theoretically have unlimited risk. If the underlying stock soars well past the call's strike price (and the option premium received), the investor must pay money to close the call option.

Meanwhile, if the stock craters and the investor doesn't have enough cash in their account to cover the trade, they'd need to use margin, potentially putting them at risk of receiving a margin call.

However, a covered short strangle (i.e., where the investor owns at least 100 shares for each covered call they write and has enough cash to cover their puts) isn't quite as risky. For example, if the underlying stock were to soar, the broker would call away the shares covering the trade. While the investor would miss out on the upside, that's the trade-off of this trade.

Conversely, the investor would get put shares (i.e., they'd be required to buy 100 shares for every put they wrote) if the stock price were to plunge. They could then wait for a recovery, potentially writing call options to chip away at the loss.

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Futures vs. Options: What's the Difference?

Betting on the future of a stock or commodity can take many forms.

When to Sell Stocks -- for Profit or Loss

When is it time to exit your position in a stock? Consider these factors.

Shares traded at around $170 in early 2024. They decided to write one call option that expires in three months, striking at $180 and receiving $450 in premium income from the option. They also write one put option with the same expiration date, striking at $160 and receiving $380 in options premium income.

They have more than enough cash in their account to cover the value of the written put ($16,000). They received $830 in total options premium income, their maximum profit on this trade. If Apple closes between $188.30 and $151.70 a share at expiration, the trade ends profitably, earning full profits if Apple closes between $180 and $160 per share.

However, if Apple closes above $180 a share, they'd see their shares called away (unless they closed their short call before expiration). And a close of less than $160 would force them to buy another $100 shares (unless they closed the put ahead of expiration).

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About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

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Matt DiLallo has positions in Apple and has the following options: short May 2025 $275 calls on Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.