Loading the player...

What is a 'Strangle'

A strangle is an options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset. This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be.


The long strangle strategy involves simultaneously buying an out-of-the-money call and an out-of-the-money put option. A long strangle theoretically has an unlimited profit potential because it involves purchasing a call option. Conversely, a short strangle is a neutral strategy and has limited profit potential. The maximum profit that could be achieved by a short strangle is equivalent to the net premium received less any trading costs. The short strangle involves selling an out-of-the-money call and an out-of-the-money put option.

Difference Between Strangle and Straddle

Long strangles and long straddles are similar options strategies that allow investors to gain from large potential moves to the upside or downside. However, a long straddle involves simultaneously purchasing an at-the-money call and an in-the-money put option. A short straddle is similar to a short strangle and has a limited maximum profit potential that is equivalent to the premium collected from writing the at-the-money call and put options. Therefore, a strangle is generally less expensive than a straddle as the contracts are purchased out of the money.

Strangle Example

For example, imagine a stock currently trading at $50 a share. To employ the strangle option strategy, a trader enters into two option positions, one call and one put. Say the call is for $55 and costs $300 ($3.00 per option x 100 shares) and the put is for $45 and costs $285 ($2.85 per option x 100 shares). If the price of the stock stays between $45 and $55 over the life of the option, the loss to the trader will be $585 (total cost of the two option contracts). The trader will make money if the price of the stock starts to move outside the range. Say that the price of the stock ends up at $35. The call option will expire worthless, and the loss will be $300 to the trader. The put option, however, has gained considerable value, and it is worth $715 ($1,000 less the initial option value of $285). Therefore, the total gain the trader has made is $415.

  1. Iron Butterfly

    An options strategy that is created with four options at three ...
  2. In The Money

    1. For a call option, when the option's strike price is below ...
  3. Variable Ratio Write

    An option strategy in which an investor holds a long position ...
  4. Call On A Put

    One of the four types of compound options, this is a call option ...
  5. Forex Option & Currency Trading ...

    A security that allows currency traders to realize gains without ...
  6. Bull Put Spread

    A type of options strategy that is used when the investor expects ...
Related Articles
  1. Trading

    4 Popular Options Strategies for 2016

    Learn how long straddles, long strangles and vertical debit spreads can help you profit from the volatility that stock analysts expect for 2016.
  2. Trading

    Profit From Earnings Surprises With Straddles And Strangles

    These option strategies allow traders to play on earnings announcements without taking a side.
  3. Investing

    How To Profit From Oil Volatility With The Following Strategies

    The recent volatility in oil prices presents an excellent opportunity for traders to make a profit if they are able to predict the right direction.
  4. Trading

    Trading Volatility? Don’t Trade Stocks, Trade Options

    During times of volatility, traders can benefit greatly from trading options rather than stocks. We explain why.
  5. Trading

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  6. Trading

    Strategies for Trading Volatility With Options (NFLX)

    These five strategies are used by traders to capitalize on stocks or securities that exhibit high volatility.
  7. Trading

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  8. Trading

    Collecting Option Premium In The Grain Market

    Believe it or not, there are some great income-generating strategies that are lower in risk.
  9. Trading

    Using Options To Pay Off Debt

    We tell you about four option strategies that could provide a way to pay off your debt.
  10. Trading

    Trade The Covered Call - Without The Stock

    The standard covered call can be used to hedge positions or generate income. This calendar spread may do so more effectively.
  1. What's the difference between a straddle and a strangle?

    Straddles and strangles are both options strategies that allow the investor to gain on significant moves either up or down ... Read Answer >>
  2. What options strategies are best suited for investing in the retail sector?

    Learn how savvy investors employ options strategies such as the long straddle and long strangle to profit from the volatile ... Read Answer >>
  3. What options strategies are commonly used for investing in the electronics sector?

    Learn how investors employ the long straddle and long strangle options strategies to profit when prices in the electronics ... Read Answer >>
  4. What options strategies are best suited for investing in the automotive sector?

    Learn how options strategies, such as the long straddle and the long strangle, enable investors to profit no matter which ... Read Answer >>
  5. Why should I consider buying an option if it's out-of-the-money?

    Learn when a trader may want to buy out-of-the-money options either for hedging purposes or to profit if the underlying stock ... Read Answer >>
  6. Should I buy options that are in the money or out of the money?

    Choosing which specific option to buy can often be a complicated process, and there are literally hundreds of optionable ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center