A Strangle is a strategy that involves buying an out-of-the-money call and an out-of-the-money put with the same expiration but different strikes.
It’s a cheaper alternative to a straddle that requires a larger move to profit.
How It Works
Buy 1 out-of-the-money call (higher strike)
Buy 1 out-of-the-money put (lower strike)
Both options share the same expiration, but have different strikes.
Profit and Loss Profile
Maximum Profit: Large if the underlying moves sufficiently beyond either strike; upside is unlimited, downside limited to asset going to zero.
Maximum Loss: Net premium paid for both options.
Breakeven: Lower breakeven = put strike − net premium; upper breakeven = call strike + net premium.
Why Traders Use It
To speculate on a big move at a lower upfront cost versus a straddle.
When you expect high volatility but want cheaper premium exposure.
For event-driven plays where a sizable directional move is possible but not certain.