Short strangle

Checked October 2026

A short strangle sells a put and a call away from the market, and keeps the credit if price finishes between them. A move through either strike is a loss, and unlike an iron condor there is no further option capping it. tastytrade's version sells the 16-delta pair about 45 days out and closes at half the credit. Backtoast ran it. The 16-delta version made 2.2% a year at +1.22% a trade, but failed our test on trade frequency, capacity and the buy-and-hold benchmark.

Backtoast

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Short strangle

A 16-delta strike sits about one standard deviation away by expiry, so each side has roughly a one-in-six chance of finishing in the money, and the credit is small next to what a big move costs. Closing at half the credit takes the trade off early, in about three weeks on tastytrade's numbers, and the next strangle opens right after.

The run sold one strangle at a time on SPY, with no stop and no filter on when to sell.

Buying a further put and call caps the loss and turns it into an iron condor strategy.

When it works

A short strangle does best in range-bound markets, when implied volatility is high and then falls back, because it collects the volatility risk premium on both the put and the call with no wings to pay for. Traders use it for the high win rate and steady theta, and keep the size small because of the tail risk. It held up in the last six months of our run, at +1.68% a trade against +1.15% before.

Origins

tastytrade tested it in a 2016 Market Measures episode on SPY from 2005, and found that closing at 50% made 76% more total profit over 11 years than holding to expiry. Tom Sosnoff's 2020 notes describe the same management, with a 90% win rate. The run used SPY from late 2021 to the end of 2025.

The run is Backtoast's, from 29 October 2026, after costs.