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Advanced Options · ADV-04b · Advanced

Short strangle

How does short strangle express a short movement inside a wider range view?

One concept per page · original written lesson · 553 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Read a contract and its premium, Rights, obligations and expiration, Defined payoff risk is not margin, Read the whole multi-leg ticket

A short strangle sells two distant rights and retains their premium if the terminal outcome stays favorable. The distance between strikes creates a flat profit region, not protective wings. That distinction separates it from an iron condor.

Construction: read every leg

Sell a 95 put and 105 call for 2.00 each. Maximum terminal profit is 400 between the strikes. Breakevens are 91 and 109. Outside them, intrinsic liability exceeds the credit. Upside loss remains unbounded.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

The usual intent is short volatility with negative Gamma and Vega. Both options can become expensive to close after an IV rise even while spot remains between the strikes. The initial Delta does not remain neutral through a large move.

Manage the position deliberately

Size from stress loss and account capacity, not premium. Compare a condor with the same short strikes and purchased wings. Moving the untested side closer can add premium but creates more reversal risk.

Fictional teaching ticket · no order submission

Short strangle

QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06

Read action, quantity, type, strike, expiry, premium and multiplier before the payoff
ActionQtyTypeStrikeExpiryPremium/unitMultiplier
SELL1Put952026-11-202100
SELL1Call1052026-11-202100
Opening option cash (+received / −paid)400 USD
Entry option fees in cost variant1.3 USD
Shares included0
Joint-terminal results—not a guarantee of interim cash requirements
MeasureBefore costsAfter stated entry fees
Maximum terminal profit400398.7
Maximum terminal loss magnitudeUnbounded in this terminal modelUnbounded in this terminal model
Breakeven settlement price(s)91, 10991.013, 108.987

This is a mathematical expiry experiment using the displayed legs, not an executable quote. The slider range is not a risk limit.

$0.65 per option contract on entry only. No exit, assignment, financing or tax costs modeled.

Independent fictional premiums, not one simultaneous arbitrage-consistent chain. All legs realized simultaneously at intrinsic at the same expiry; terminal calculations do not model American early exercise, temporary unhedged positions, forced liquidation or live liquidity. Displayed chart domain is not a tail-risk cap.

From opening cash to a settlement result

Read the opening instructions: sell 1 95 put at 2.00; sell 1 105 call at 2.00. Option opening cash is $400.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 115.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $-600.00 before costs and $-601.30 after illustrative opening fees of $1.30. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is $400.00; maximum terminal loss magnitude is unbounded in this model, before costs. Isolated zero-P/L settlement points in the model: 91, 109. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Calculate this exact ticket

Same-page calculation. Closing restores the lesson position and originating control.

P/L = Σ[q × multiplier × (intrinsic − opening premium)] + shares × (S−share entry) − costs

Intrinsic is nonnegative before the signed quantity is applied. This is a fictional terminal calculation.

  1. -1 × 100 × (0.00 − 2.00) = $200.00: 95 put.
  2. -1 × 100 × (10.00 − 2.00) = $-800.00: 105 call.
  3. Opening fees: 1.30.
Before costs $-600.00; after entry fees only $-601.30.

Maximum risk and breakevens

Same-page calculation. Closing restores the lesson position and originating control.

Evaluate S=0, all strikes and the final tail slope; solve P/L=0 on each linear segment.

Same-expiry payoffs are piecewise linear. A finite chart range cannot prove a tail is bounded.

  1. Maximum terminal profit is $400.00; maximum terminal loss magnitude is unbounded in this model, before costs.
  2. Breakeven points: 91, 109.
  3. Costs shift net P/L downward without moving the strikes.
Maximum terminal profit is $400.00; maximum terminal loss magnitude is unbounded in this model, before costs.

The whole ticket at common expiry

Vertical: P/L per complete ticket (USD)
Horizontal: Underlying settlement price (USD)

The whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-1,236.42-882.11-527.803-173.497180.81535.117808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees
Solid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range.
See the individual legs behind the combined curveThe whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-1,453-1,051.8-650.6-249.4151.8553808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees3. Leg 1: SELL 1 95 put4. Leg 2: SELL 1 105 call
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Underlying settlement price (USD)Combined terminal P/L before feesCombined terminal P/L after entry feesLeg 1: SELL 1 95 putLeg 2: SELL 1 105 call
80-1,100-1,101.3-1,300200
80.5-1,050-1,051.3-1,250200
81-1,000-1,001.3-1,200200
81.5-950-951.3-1,150200
82-900-901.3-1,100200
82.5-850-851.3-1,050200
83-800-801.3-1,000200
83.5-750-751.3-950200
84-700-701.3-900200
84.5-650-651.3-850200
85-600-601.3-800200
85.5-550-551.3-750200
86-500-501.3-700200
86.5-450-451.3-650200
87-400-401.3-600200
87.5-350-351.3-550200
88-300-301.3-500200
88.5-250-251.3-450200
89-200-201.3-400200
89.5-150-151.3-350200
90-100-101.3-300200
90.5-50-51.3-250200
910-1.3-200200
91.55048.7-150200
9210098.7-100200
92.5150148.7-50200
93200198.70200
93.5250248.750200
94300298.7100200
94.5350348.7150200
95400398.7200200
95.5400398.7200200
96400398.7200200
96.5400398.7200200
97400398.7200200
97.5400398.7200200
98400398.7200200
98.5400398.7200200
99400398.7200200
99.5400398.7200200
100400398.7200200
100.5400398.7200200
101400398.7200200
101.5400398.7200200
102400398.7200200
102.5400398.7200200
103400398.7200200
103.5400398.7200200
104400398.7200200
104.5400398.7200200
105400398.7200200
105.5350348.7200150
106300298.7200100
106.5250248.720050
107200198.72000
107.5150148.7200-50
10810098.7200-100
108.55048.7200-150
1090-1.3200-200
109.5-50-51.3200-250
110-100-101.3200-300
110.5-150-151.3200-350
111-200-201.3200-400
111.5-250-251.3200-450
112-300-301.3200-500
112.5-350-351.3200-550
113-400-401.3200-600
113.5-450-451.3200-650
114-500-501.3200-700
114.5-550-551.3200-750
115-600-601.3200-800
115.5-650-651.3200-850
116-700-701.3200-900
116.5-750-751.3200-950
117-800-801.3200-1,000
117.5-850-851.3200-1,050
118-900-901.3200-1,100
118.5-950-951.3200-1,150
119-1,000-1,001.3200-1,200
119.5-1,050-1,051.3200-1,250
120-1,100-1,101.3200-1,300

The failure case

A distant call strike does not prevent a squeeze from continuing. Assuming a dealer wall will cap the rally compounds an uncovered-risk position with an unverified inventory claim.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

What is whole-position terminal P/L at QLT 115.00, before costs?

Reveal the worked answer

$-600.00

Use all signed legs, not just the winning leg. The popup and graph use the same ticket.

Critical risk question

Does a terminal loss bound guarantee every early-assignment or liquidation outcome?

Reveal the worked answer

No.

It describes the specified common-settlement payoff. Product rules, stock delivery, capital and execution still matter.

Takeaway

Explain the intended short movement inside a wider range exposure, each leg's obligation and the adverse price region before using the strategy name.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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