Short Strangle Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to sell short strangles and use Barchart to get the most out of the strategy.

What Is A Short Strangle?

A short strangle is a neutral options strategy that involves selling both a call and a put on the same underlying asset with the same expiration date but at different strike prices. The strategy profits from sideways or neutral price movement and is successful if both options expire out of the money. The premium received is the maximum profit, and losses occur in the event the underlying asset's trading price moves beyond the strike prices in either direction.

Trade Examples

Let’s take a look at Barchart to see what short strangle trades are available right now.

From Barchart.com, click on Options, then Short Strangle, and you’ll be immediately brought to a page showing potential underlying assets you can use for short strangles.

On this page, you’ll also get all the essential information you need for the trade, like strike prices, premiums, delta, and, more importantly, the probability of maximum profit and losses. Each column can be arranged from highest to lowest or vice versa with a simple click.

This information is enough for almost all traders to get started, but if you’d like to customize your results, Barchart’s options screener also allows you to screen the market using different criteria.

Example With Filters/Screening

From the results page, navigate to the top left corner of the table and click Set Filters. This will bring you to the Option Screener page, where you can pick and choose from dozens of option and stock filters to customize your trade to your liking.

To add different filters, you can click on the Add a Filter field and type in what you need, or you can go to the dropdown menu and check the different categories and filters. Once you have one, simply click Add and the filter will appear in your screen,

My most important filter is Max Profit Probability. Many traders target 50 - 70% max profit probabilities on short strangles. However, if you want to be a little conservative, especially when dealing with short positions and the risk of assignment, so you can set the range from 75% max profit probability and up. Just know that the higher the probability of profit, the lower the premium.

Now I'll click "See Results." By the way, you can also save your screener to reuse it later, and have Barchart email you at a specified time with your trades.

And there we go! I got exactly one result, which I’ll use as an example.

So, for this short strangle, we have GameStop, whose stock is trading at $22.40. The screener suggests selling a $25-strike call, collecting 20 cents, and selling a $21-strike put for 11 cents, bringing the net premium received to 31 cents, or $31 per short strangle. Both options expire in August 2024, and the trade has a 75.4% probability of achieving the maximum profit.

Now, let’s see how this trade could play out.

Short Strangle Breakeven Prices

To determine at what point the trade starts losing money, we need to know the breakeven points—on the upside and the downside. Barchart tells us this information on the results page. Now, if you’d like to calculate it yourself, just add the net premium received to the short call strike for the upside breakeven and subtract it from the short put strike for the downside breakeven point.

$25.00 + $0.31 = $25.31 $21 - $0.31 = $20.69

Short Strangle Expires Worthless (Profit)

Now, let’s say GME stock closes at $24 on August 23. That means both options expire worthless or out of the money, meaning you keep the premium you received at the start of the trade.

So that’s $31 per short strangle.

$0.11 + $0.20 = $0.31 x 100 = $31.00

Short Strangle Expires In The Money (Loss)

On the other hand, if GME stock exceeds $25 at expiration, and closes at $30, the short call will be assigned, resulting in a loss.

The loss amount is calculated by subtracting the upper breakeven price of $25.31 from the stock's trading price at expiration, and multiply by 100. In that case, this trade would result in a $469 loss.

$30 - $25.31 = $4.69 x 100 = $469

Short Put Expires In The Money (Loss)

If GME stock trades at $17 by expiration, now the short put will be in the money, and you will lose money on the trade.

To calculate the loss, subtract the current trading price from the lower breakeven price, then multiply by 100 for every short strangle trade you have. So, for this trade, that works out to $369.

($17.00 - $20.69) x 100 = -$369

Profit/Loss Across Different Price Points

Here’s a table that shows the different price points the stock could go, as well as the trades P&L.

As you can see, the trade maintains maximum profit if the underlying stock’s price stays within the two strike prices.

Beyond that and the breakeven points, the trade transitions to a loss, which increases the further the stock's trading price moves.

Screening For Short Strangles On Specific Assets

You can also look for short strangles using a specific asset.

To do that, search for the asset, which takes you to the Quote Overview page for the asset, and then go to the left-hand panel and look for Straddles and Strangles. Click on that, and then you’ll be brought to the results page for long straddles. From there, click on the Short Strangle tab, where you can sort using the column headers, change the expiration dates, or the strike price.

To further refine your selection, you can also click "screen" and then "set filters" and add or change the filters as you like. It’s that simple.

Pros and Cons

The short strangle is a great strategy for when markets are neutral, stable, or moving sideways. Since you’re selling options, you collect a premium, and since you’re selling two options with different strikes, your breakeven prices are a bit more forgiving than just outright selling one option. Time decay also works in your favor as the closer you are to expiration, the more the options lose value, and that benefits your position.

• Profit in a Stable Market
• Immediate Premium
• Lower Breakeven Points
• Reduced Volatility Impact
• Theta (Time Decay) Advantage

However, the short strangle is a risky trade, especially if the underlying security experiences large price movements. While the strategy offers limited profit potential, it carries potentially unlimited risk to the upside, and significant risk to the downside. Additionally, because you’re selling two options simultaneously, the trade may have significant margin requirements.

• Risky During Massive Market Fluctuations
• Limited Profit Potential
• Unlimited Loss Potential
• Margin Requirements

Conclusion

Short strangles can be used to profit from neutral markets. However, it’s sensitivity to massive price movements may expose you to significant losses. To mitigate risk, always use the Short Strangle Options Screener to know the chances of profit and loss as doing so will tilt the chances in your favor. If you need more information about short strangles or other trading strategies, visit the Barchart Options Learning Center.