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.