Payoff Schedule Payoff Chart

NIFTY @ Net Payoff ( ) 12000

Expiry 10000
5000 15000
8000
5100 10000
5200 5000 6000

5300 0 4000

5400 -5000 2000

5500 -5000
0
5600 -5000 5100 5200 5300 5400 5500 5600 5700 5800 5900
-2000
5700 0
5800 5000 -4000

5900 10000 -6000

6000 15000

In the above chart, the breakeven happens the moment Nifty crosses 5300 or 5700 and risk is limited to a
maximum of 5000 (calculated as Lot size * Premium Paid).Here it is important to note that the premium is
calculated as the sum of premium paid for the Call and Put option.

Disclaimer

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 Short Strangle
Short Strangle is a strategy to be used when the investor is Neutral on the market direction and bearish on
volatility expecting markets to trade in a narrow range.

This strategy involves selling an “Out-of-the-Money Call Option” and selling an “Out-of-the-Money Put
Option”. Both options must have the same underlying security and expiration month.

Short Strangle is a slight modification to the Short Straddle. The profit payoff region is much wider as
compared to Short Straddle.

If the underlying stock does not show much of a movement, the investor of the Short Strangle gets to keep the
premium.

Investor view: Neutral on direction and bearish on volatility of the Stock/ Index.

Risk: Unlimited.

Reward: Limited to net premium received.

Upper breakeven: Sell Call Strike price + net premium received.

Lower breakeven: Sell Put Strike price – net premium received.

Illustration

Eg. Nifty is currently trading @ 5500. A Short Strangle can be created by selling Put Strike 5400 @ premium
of 80 and selling Call Strike 5600 @ 90 respectively. Net inflow of premium is 170.

Strategy Stock/Index Type Strike Premium

Short Strangle NIFTY(Lot Sell PUT 5400 80 (Inflow)

size 50)

Sell CALL 5600 90 (Inflow)

The payoff schedule and chart for the above is shown below.

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