An options strategy for a sideways market can turn a flat chart into steady income. But what does trading sideways mean, and why do some trades win when prices barely move? We will look at common setups, risks, and tools to help you trade when the market stalls.
KEY TAKEAWAYS
An options strategy for a sideways market, like the iron condor and the butterfly spread, is built to make money from little movement in the underlying price. You sell time and volatility, not direction.
Sideways markets can be tricky, but with the right neutral strategy - like straddles or condors - you can profit from the lack of movement.
On Option Samurai, you can use the “Neutral” filter to find top sideways-market trades based on probability and reward-risk metrics.
What does trading sideways mean?
Trading sideways means the price of a stock or ETF stays in a tight range without forming a clear trend. The chart fluctuates slightly, but it never breaks out in one direction. This can happen for days, weeks, or even months.
In this kind of market, traditional directional trades like buying calls or puts often fail. You might buy a call expecting a rally, but the price stays flat and time decay eats away at your premium.
An options strategy for a sideways market works differently. Instead of needing a big move, you aim to profit from:
Primarily, failing time decay (theta) as options lose value each day
Secondarily, you may also benefit from implied volatility, which can reduce option prices further
The risk is simple: the more the stock moves outside your expected range, the more you can lose. This is why range selection is key.
A trader using a sideways strategy sets clear boundaries and chooses strikes that give the position room to breathe. The goal is to keep the price inside that zone until expiration. If it works, you collect premium without chasing market direction. If it doesn’t, losses can build quickly.
Options Strategy for a Sideways Market #1 - Short straddle: high risk, high reward
A short straddle is one of the simplest ways to apply an options strategy for a sideways market. You sell an at-the-money (ATM) call and an ATM put with the same strike and expiration. The trade collects the maximum premium possible from a single-strike setup.
As you can see from the P&L above, the logic is straightforward - if the stock stays close to the strike until expiration, both options lose value from time decay, and you keep the premium. This works best when implied volatility is high and likely to drop, because falling IV makes the options cheaper for you to buy back.
Key points to remember:
Profit is limited to the premium collected
Risk is unlimited if the stock moves far above or below the strike
Works best when trading sideways means a tight, stable range
Time decay works in your favor every day the stock stays near the strike
Most traders close the trade early: if it’s profitable, the reward left may not justify staying in, and if it goes wrong, losses can grow much larger than the initial gain
The appeal is the high income potential. The danger is that one sharp move can wipe out weeks of gains. This makes risk management essential. Many traders only use the short straddle ahead of quiet periods, avoiding earnings or major news. If the market does not behave as expected, losses can grow fast.
Options Strategy for a Sideways Market #2 - Short strangle: a bit more breathing room
The short strangle is another options strategy for a sideways market available on our options screener. Compared to the short straddle, the short strangle comes with extra space between you and potential losses. You sell an out-of-the-money (OTM) call and an OTM put, both with the same expiration. This creates a wider profit zone than a short straddle.
Because both strikes are OTM, the premium collected is smaller than with a straddle, but, as you see from the chart above, the trade can tolerate more price movement before hitting breakeven. This makes it useful when you expect sideways movement but not perfectly flat action.
Key facts about the short strangle:
Max profit = total premium collected, achieved if both options expire worthless
Losses grow once price moves past either breakeven point
Wider range = lower risk per dollar of premium, but also lower reward
This setup works best when trading sideways means a broader consolidation zone rather than a tight range. Many traders prefer it for high-probability strategies because the stock can move a fair amount and still stay profitable. However, if the market makes a large, unexpected move, losses can escalate quickly, so it’s important to size positions and monitor risk carefully.
Options Strategy for a Sideways Market #3 - Iron condor: defined risk, balanced reward
The iron condor is an options strategy for a sideways market that combines a short call spread with a short put spread. Both spreads share the same expiration date but have different strike prices, creating a “profit box” between the short strikes.
You collect a net credit when opening the trade. As long as the stock stays between the short call strike and the short put strike until expiration, both spreads expire worthless, and you keep the premium. This is why it works well when trading sideways means price fluctuations within a predictable range.
The “wings” of the iron condor (the long call above and the long put below) define your maximum loss, which makes this options strategy for a sideways market attractive for traders who want a clear risk boundary.
Key points:
Max profit = premium collected if price stays inside the short strikes
Max loss = difference between strikes of one spread minus the premium collected
Works best for sideways stocks with medium implied volatility
Our Backtested Approach to Iron Condors
We use the ADX indicator to identify low-trend conditions where iron condors perform best. With Option Samurai, you can scan for opportunities and check how the stock behaved in past similar setups. Our free backtesting file lets you review any stock’s history by ADX value, increasing confidence in your trade. You can find more details on the strategy by reading our backtesting iron condor guide.
Options Strategy for a Sideways Market #4 - Butterfly spreads: a precise bet on no movement
If you like iron condors, you'll probably end up liking the butterfly spread. It is built with three strike prices: buy one call, sell two calls at a middle strike, and buy another call above that. The put version works the same way but with puts.
In both cases (long call and long put butterfly), the P&L has this shape:
This options strategy for a sideways market works best when trading sideways means the price is likely to finish very close to the middle strike. The profit potential is highest at that exact point and falls quickly as the stock moves away.
Key points:
Low-cost to enter compared to other multi-leg spreads
Risk is limited to the net debit paid
Reward can be attractive if price finishes near the middle strike
Butterflies are a precise tool. They shine when you expect very little movement and want a defined risk-reward setup.
Selling OTM options as a neutral strategy
Selling out-of-the-money options can be a simple options strategy for a sideways market (or, better, sideways to mildly bullish). You profit as long as the option stays OTM until expiration, which means the underlying never reaches your strike. In general, we prefer selling puts because they tend to expire worthless more often than calls (as we told you in the past when talking about the most successful options strategies on the market). So, in the naked put case, you’d have the following P&L chart:
The main driver of profit is theta, as the option loses value each day. This works well when trading sideways means price stability or only small moves away from the strike.
You can sell OTM options as:
Naked puts or calls for maximum premium
Part of a credit spread for defined risk
This approach fits slightly bullish or bearish but overall neutral views. If the stock moves past your strike, losses can grow quickly, so many traders choose strikes with high probability of expiring worthless and manage risk actively.
Building flexible neutral strategies
An options strategy for a sideways market does not have to be perfectly balanced. You can mix bullish, bearish, and neutral views into custom setups that match your outlook. If you expect the market to stay mostly flat but see little upside risk, you can build an iron condor with the lower wing closer to the short strike, increasing credit while keeping defined risk.
Another example is a broken wing butterfly skewed to one side. This lets you profit from a narrow range while adding extra room on the side you expect less movement. Flexibility matters because trading sideways means different things in different contexts - sometimes it’s a tight range, sometimes it’s a slow drift.
With Option Samurai, you can speed up this process using the Neutral tag in the filter library:
This tag selects scans where the profit zone is centered near the current price, making it easier to spot high-probability trades. It saves time by removing the need to manually screen dozens of tickers.
Key benefits:
See only strategies with centered profit zones
Automate idea generation for sideways markets
Find setups faster without missing opportunities
This approach works well when you want a tailored options strategy for a sideways market without starting from scratch every time.
Gianluca Longinotti is an experienced trader, advisor, and financial analyst with over a decade of professional experience in the banking sector, trading, and investment services.
Leav Graves is the founder and CEO of Option Samurai and a licensed investment professional with over 19 years of trading experience, including working professionally through the 2008 financial crisis.
Gianluca LonginottiFinance Writer - Traders Education
Leav GravesCEO