Strangle
Quick Definition
An options strategy involving the purchase (or sale) of an OTM call and OTM put at different strikes with the same expiration, a wider alternative to a straddle.
What Is Strangle?
A strangle involves buying (long strangle) or selling (short strangle) an out-of-the-money call and an out-of-the-money put with the same expiration but different strike prices. Compared to a straddle, a strangle is cheaper (because both options are OTM) but requires a larger price move to become profitable. A long strangle profits from a large move in either direction and is cheaper than a straddle but has wider breakeven points. A short strangle collects less premium than a short straddle but has a wider profit zone. Short strangles are among the most popular premium-selling strategies because they offer high probability of profit with defined (though potentially large) risk. The strategy is often managed at 50% of max profit or 21 days to expiration, whichever comes first, to reduce risk as gamma increases near expiration.
Strangle Example
- 1Buy the $95 put for $2 and $105 call for $2 (total $4). The stock must move below $91 or above $109 for the long strangle to profit — wider breakevens than a straddle
- 2A trader sells 16-delta strangles on SPY each month — selling the $435 put for $3 and $465 call for $3, profiting if SPY stays between $429-$471
Related Terms
Straddle
An options strategy involving the simultaneous purchase (or sale) of a call and put at the same strike price and expiration, betting on volatility magnitude.
Iron Condor
A popular neutral options strategy that sells an OTM put spread and OTM call spread simultaneously, profiting when the underlying stays within a defined range.
Out of the Money (OTM)
An option with no intrinsic value — a call with strike above the stock price or a put with strike below the stock price.
Implied Volatility (IV)
The market's forecast of the likely magnitude of future price movements, derived from current option prices using pricing models.
Theta (Options)
The Greek that measures the rate at which an option loses value as time passes, also known as time decay.
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
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