What Is Strangle?
A long strangle buys an out-of-the-money call and an out-of-the-money put at the same expiration. The trade profits if the underlying makes a large move in either direction, exceeding the combined premium paid plus the distance from the entry price to the strikes.
Long strangles are cheaper than long straddles because both options are OTM, but they require larger moves to be profitable. Maximum loss is limited to the combined premium paid. Maximum profit on the call side is theoretically unlimited; on the put side it's the put strike minus the total premium.
Short strangles (selling both options) are popular income strategies in low-volatility environments. They have unlimited loss potential and require careful position sizing. Long strangles are commonly used ahead of binary events (earnings, FDA decisions, macro releases) where the trader expects a large move but doesn't know the direction.
Related terms
- Options Contract — A derivative giving the right (but not obligation) to buy or sell an asset at a set price by a set date.
- Straddle — Buying both a call and a put at the same strike — bets on a large move in either direction.
- Vega — Sensitivity of an option's price to a 1-point change in implied volatility.
- Implied Volatility (IV) — Market-expected future volatility, derived from options prices.