Strangle
IntermediateA strangle is an options strategy that involves buying an out-of-the-money call and an out-of-the-money put on the same asset with the same expiry date, to profit from a large price move in either direction.
A strangle is similar to a straddle, but the call and put have different strike prices, both away from the current price. This makes a strangle cheaper than a straddle, but the price must move further before it becomes profitable.
For example, with a share trading at 100, an investor buys a call with a strike of 110 for 3 and a put with a strike of 90 for 2, a total cost of 5. At expiry, the strategy profits if the share rises above 115 or falls below 85. If the share ends anywhere between 90 and 110, both options expire worthless and the investor loses the 5.
Strangles suit investors who expect a very large price move but want to spend less than a straddle would cost.
As with straddles, the risk is that the price does not move enough. Selling a strangle is a strategy used by traders who expect prices to remain within a range, earning the premiums, but it carries the risk of large losses if the price moves sharply.
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