Ultimate Guide to Strangle Trading on Futures for Steady Profits

Strangle trading on futures is a powerful strategy for generating consistent income, even in volatile markets.

In 2024, I’ve won 31 out of 33 strangle trades, earning $26,050 in just five months with minimal buying power. This guide breaks down how to sell strangles, why they work, and how you can use them to boost your trading profits. Let’s dive in!

What Is a Strangle?

A strangle involves selling both a call option and a put option on the same underlying asset, with different strike prices but the same expiration date.

You collect premiums upfront and profit as long as the asset’s price stays within a defined range between the two strikes. Unlike directional trades, you don’t need to predict market direction—just that the asset won’t move too far in either direction.

Why Trade Strangles on Futures?

Strangle trading addresses common trading challenges like market volatility, unpredictable trends, and income maximization. Here’s why it’s one of my top strategies:

1. Profit from Stability: Strangles thrive when the market stays within a range, making them ideal for assets with low volatility or sideways movement.

2. Dual Premiums: You collect premiums from both the call and put, doubling your income potential compared to single-option strategies.

3. No Directional Risk: You win if the asset goes up, down, or stays flat, as long as it doesn’t breach your strike prices.

4. Low Upfront Cost: Unlike buying options, selling strangles requires no out-of-pocket payment—you’re paid to trade, though margin is needed.

5. High Win Rate: My 2024 results show a 93.9% win rate (31/33 trades), with an average trade duration of under 30 days.

Risks to Understand

• Unlimited Loss Potential: Selling naked calls and puts carries significant risk if the market moves far beyond your strikes.

• Margin Requirements: You need a margin account with sufficient funds to cover potential losses.

• Market Unpredictability: Unexpected volatility spikes can lead to losses, especially on high-volatility assets.

My Strangle Trading Strategy

As a theta trader, I focus on collecting premiums and letting time decay (theta) work in my favor.

Here’s my step-by-step approach to selling strangles on futures:

Step 1: Choose the Right Underlying

I trade futures on commodities and indices, which are often more stable than individual stocks. My go-to assets include:

• Oil: Ranges tightly (e.g., $65–$90 over two years).

• Gold: Stable within $1691–$2083 since 2019.

• Copper: Often range-bound, ideal for strangles.

• Bond Futures: Moved within a 25-tick range ($107–$135) over two years.

• S&P 500 Futures (ES): Less volatile than single stocks, though trending upward long-term.

Commodities are perfect because they oscillate within ranges, unlike stocks that tend to rise over time.

I avoid individual stocks due to their susceptibility to news-driven swings.

Step 2: Technical Analysis for Entry

To maximize success, I use technical analysis on weekly and daily charts to identify stable, sideways-moving assets. Key indicators include:

• Weekly Charts: Look for flat moving averages (21 and 50-week) and no wild swings in RSI or MACD.

• Daily Charts: Confirm sideways action, hugging the 21 or 50-day moving averages, with no strong trend.

• Sideways Setup: The asset should lack a clear bullish or bearish trend, indicating low realized volatility.

For example, I traded the Australian Dollar (AUD) futures, which showed calm, sideways movement on both weekly and daily charts, making it a perfect strangle candidate.

Step 3: Trade Entry and Strike Selection

• Expiration Date: I target 60–150 days to expiration (DTE), typically around 90 days. Longer DTEs increase premiums and safety, as implied volatility (market’s expected range) often overestimates actual price swings compared to shorter 30–45 DTE options.

• Strike Selection: I sell calls ~9% above the current price and puts ~10% below, aiming for 7–10 delta to stay far out-of-the-money (OTM). This gives a wide range (e.g., 15–20% total) for the asset to move while still profiting.

• Premium Goal: I aim to collect premiums that yield a 20–30% return on margin. For the AUD trade, I sold a 705 call and 660 put, collecting premiums for a 24% return on margin in 40 days.

Step 4: Trade Management

• Profit Target: I close trades at a 50% premium capture (e.g., if I collect $1,000 total, I close at $500 profit). My average trade duration is 28–30 days, with some as short as 6 days and others up to 40 days.

• Stop Loss: I limit losses to 1.5–2% of my account per trade, using a 3x max loss stop (e.g., if premiums are $1,000, I stop out at $3,000 loss). This keeps risks manageable.

• Position Sizing: I risk no more than 2% of my portfolio per trade and allocate up to 30% of my buying power to strangles, ensuring diversification.

Step 5: Example Trade – Australian Dollar Futures

On April 26, I sold a strangle on AUD futures:

• Setup: Weekly and daily charts showed flat moving averages and no significant RSI/MACD swings, indicating a sideways market.

• Trade Details: Sold a 705 call and 660 put (9–10% OTM), with the AUD at ~0.65. Collected premiums for a 24% return on margin.

• Outcome: Closed after 40 days for a 50% profit, earning 24% on margin (29% annualized). The AUD moved slightly to 0.667, staying well within the 660–705 range.

Step 6: Monitor and Adjust

I track trades in a spreadsheet, noting premiums, margin, and profit/loss. If volatility spikes, I may close early to avoid losses.

In stable markets, I let theta decay maximize profits. I avoid high-volatility assets, as they increase risk—calm markets are safer and still offer solid premiums.

Real-World Results

In 2024, my strangle trades achieved:

• 93.9% Win Rate: 31/33 trades won.

• Total Profits: $26,050 in five months.

• Average Trade Duration: ~28–30 days, with a range of 6–40 days.

• Average Return: 24% per trade on margin, equating to ~29% annualized for the AUD trade.

Tips for Success

1. Choose Low-Volatility Assets: Avoid high-IV assets like volatile stocks. Stick to range-bound futures like oil, gold, or bonds.

2. Use Technical Analysis: Confirm sideways markets with flat moving averages and stable RSI/MACD.

3. Go Longer-Term: 90–150 DTE trades are safer than 45 DTE, as implied volatility overestimates actual price swings.

4. Limit Risk: Cap losses at 1.5–2% per trade and size positions conservatively.

5. Be Patient: Don’t force trades on trending assets like gold during breakouts. Wait for calm, range-bound setups.

Final Thoughts

Selling strangles on futures is a game-changer for generating consistent income.

By targeting stable commodities and indices, selling 7–10 delta strikes, and closing at 50% profit, you can achieve high win rates and impressive returns.

My 2024 results—$26,050 from 31 wins—prove its potential. Stay disciplined, use technical analysis, and let theta work its magic.

Ready to elevate your trading? Start small, join our Discord community for real-time trade setups, and master strangle trading for steady profits.

Happy trading!

-TK