Is it also possible to sell a Strangle in the F&O market?
Answer
Answer
It is absolutely possible to sell a Strangle. You sell a Strangle when you expect the stock to be range bound. In that case, your bet is that if the stock is within the range then you get to take away either full or part of the premium you received. Unlike a straddle that sells the call and put on the same strike price, the strangle sells higher calls and lower puts, so you have a larger profitability range. But when you sell a Strangle be careful that if the price becomes volatile then your losses could be unlimited. That is a huge risk in any strangle selling and hence it must only be done with proper planning and stop losses set. The chart below captures the pay offs of selling or writing a strangle in the options market.
Sell Strangle by selling RIL 1140 call at Rs.22 and selling RIL 1060 put at Rs.18
Short Call Strike
RIL CMP
Diff
ITM/OTM
Call Premium
P&L on Call
Call Profit
Short Put Strike
RIL CMP
Diff
ITM/OTM
Put Premium
P&L on Put
Put Profit
Total Profit
1140
900
240
OTM
22
0
22
1060
900
-160
ITM
18
-160
-142
-120
1140
920
220
OTM
22
0
22
1060
920
-140
ITM
18
-140
-122
-100
1140
940
200
OTM
22
0
22
1060
940
-120
ITM
18
-120
-102
-80
1140
960
180
OTM
22
0
22
1060
960
-100
ITM
18
-100
-82
-60
1140
980
160
OTM
22
0
22
1060
980
-80
ITM
18
-80
-62
-40
1140
1000
140
OTM
22
0
22
1060
1000
-60
ITM
18
-60
-42
-20
1140
1020
120
OTM
22
0
22
1060
1020
-40
ITM
18
-40
-22
0
1140
1040
100
OTM
22
0
22
1060
1040
-20
ITM
18
-20
-2
20
1140
1060
80
OTM
22
0
22
1060
1060
0
ATM
18
0
18
40
1140
1080
60
OTM
22
0
22
1060
1080
20
OTM
18
0
18
40
1140
1100
40
OTM
22
0
22
1060
1100
40
OTM
18
0
18
40
1140
1120
20
OTM
22
0
22
1060
1120
60
OTM
18
0
18
40
1140
1140
0
ATM
22
0
22
1060
1140
80
OTM
18
0
18
40
1140
1160
-20
ITM
22
-20
2
1060
1160
100
OTM
18
0
18
20
1140
1180
-40
ITM
22
-40
-18
1060
1180
120
OTM
18
0
18
0
1140
1200
-60
ITM
22
-60
-38
1060
1200
140
OTM
18
0
18
-20
1140
1220
-80
ITM
22
-80
-58
1060
1220
160
OTM
18
0
18
-40
1140
1240
-100
ITM
22
-100
-78
1060
1240
180
OTM
18
0
18
-60
1140
1260
-120
ITM
22
-120
-98
1060
1260
200
OTM
18
0
18
-80
1140
1280
-140
ITM
22
-140
-118
1060
1280
220
OTM
18
0
18
-100
1140
1300
-160
ITM
22
-160
-138
1060
1300
240
OTM
18
0
18
-120
As mentioned earlier, selling the Strangle is a typically risky strategy which only works when the markets are very range bound so that the total premium receipt can cover the range. If it goes outside the range, the losses can be unlimited. The maximum profit as can be seen in the above chart will be Rs.40 and it will occur at the range of 1060 to 1140 at which the Strangle is sold. The breakeven point on the downside will be 1020 (1060 – 40) while on the upside the breakeven level will be 1180 (1140 + 40). As long as the RIL price stays within this range of 1020 and 1180, you will earn profits on the short / written Strangle. The moment the price goes outside this range, you start losing money on the Strangle.