Strangle

Strangle Strategy

Low cost, very high profits if the price rises or falls significantly.

The Strangle is a strategy used to bet on increased volatility — that the price of an asset will soon move sharply in either direction. The Strangle is made up of an out-of-the-money call option and an out-of-the-money put option with the same expiration.

When buying a Strangle, the reasoning is:

“I don’t care what the price will be, but if it changes significantly in either direction during the period of holding the Strangle, I win big.”

The Strangle is much cheaper than the Straddle (which uses two at-the-money options). By purchasing a Strangle (two out-of-the-money options), you pay less upfront while maintaining very high profit potential.

The Strangle has a limited cost and unlimited profit potential.

Buying one Strangle is equal to buying two OTM options: one OTM call and one OTM put.