A strangle is an options strategy that profits from big moves in either direction. It involves buying (or selling) both a call and a put at different strike prices. Here is how it works.
What is a Strangle?
A strangle consists of buying or selling a call and a put with the same expiration but different strike prices. The call strike is above the current stock price, and the put strike is below it.
Simple version: A strangle is a bet on movement. Long strangles profit from big moves in either direction. Short strangles profit when the stock stays in a range.
Long Strangle
You buy both a call and a put. You profit if the stock makes a big move in either direction.
Long Strangle Example
Stock is at $100.
- Buy $105 call for $2.00
- Buy $95 put for $2.00
- Total cost: $4.00 ($400 per contract)
Breakeven points: $91 or $109
Max loss: $4.00 if stock stays between $95 and $105
Max profit: Unlimited if stock moves big in either direction
When to Use a Long Strangle
- Before earnings when you expect a big move but do not know direction
- Before major news events
- When implied volatility is low and you expect it to rise
Short Strangle
You sell both a call and a put. You profit if the stock stays in a range and the options expire worthless.
Short Strangle Example
Stock is at $100.
- Sell $110 call for $1.50
- Sell $90 put for $1.50
- Total credit: $3.00 ($300 per contract)
Breakeven points: $87 or $113
Max profit: $3.00 if stock stays between $90 and $110
Max loss: Unlimited if stock moves big in either direction
When to Use a Short Strangle
- When you expect the stock to stay in a range
- When implied volatility is high and you expect it to fall
- After earnings when IV crush happens
Strangle vs Straddle
- Strangle: Uses different strikes (OTM call and OTM put). Cheaper but needs a bigger move to profit.
- Straddle: Uses the same strike (ATM call and ATM put). More expensive but profits from smaller moves.
Risks
Long Strangle Risks
- Both options can expire worthless if the stock does not move enough
- Time decay works against you on both legs
- IV crush after events can hurt you even if the stock moves
Short Strangle Risks
- Unlimited loss potential if the stock moves big
- Requires margin and close monitoring
- Gap moves can cause significant losses
Track Your Strangle Trades
Pro Trader Dashboard tracks all your options strategies. See how your strangles perform over time.
Summary
A strangle is a volatility strategy that profits from movement (long strangle) or lack of movement (short strangle). Long strangles are good before expected volatility events. Short strangles work when you expect range-bound action. Both have significant risks, so understand them before trading.
Learn about related strategies: iron condors or straddles.