Strategies
Strangle
Also called: long strangle, short strangle
A strangle buys (or sells) an out-of-the-money call and an out-of-the-money put with the same expiration. It costs less than a straddle but needs a larger move to profit, and the short version collects less premium in exchange for a wider profit zone.
Strangles trade width for cost. A long strangle is a cheaper bet on a large move; its break-evens are further away than a straddle's. A short strangle, commonly placed around the 16-delta strikes (about one standard deviation), is a core premium-selling structure with roughly a 68% probability of expiring between the strikes.
Short strangles carry undefined risk on both sides and are sensitive to IV expansion. Traders manage them by rolling the tested side, closing at a percentage of maximum profit, or converting to iron condors by buying further-out wings.
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Frequently asked questions
What is the difference between a straddle and a strangle?
A straddle uses one strike, at the money; a strangle uses two out-of-the-money strikes. The straddle costs more and profits from a smaller move; the strangle is cheaper and needs a bigger move.