Multi-leg strategies
What is a Short Strangle and how do institutional desks manage its undefined tail risk?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Short Strangle sells an OTM call and OTM put, collecting premium with profit if the underlying stays within a range, but it carries theoretically unlimited risk on the call side.
How it works
Institutional desks often manage this undefined risk using delta hedging, position sizing limits, margin buffers, and predefined stop-loss or rolling rules rather than holding to expiration unmanaged.
An example
A trader sells a 110 call and 90 put for $4 credit; losses mount without limit above 110 if a large rally occurs, requiring active monitoring.
Risk & limitations
This strategy has unlimited loss potential above the call strike and substantial loss potential below the put strike; it is not suitable without margin capacity and active risk controls.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.