Strangle is an options strategy involving the purchase of an out-of-the-money (OTM) call and an OTM put with the same expiration but different strike prices. Like straddles, strangles profit from big moves in either direction. However, strangles are cheaper because both options are OTM, but they require larger moves to be profitable.
- Buy OTM call + OTM put at different strikes
- Cheaper than straddle, needs bigger move
- Max loss = total premium paid
How Strangles Work
Strangles need bigger moves to profit:
Long Strangle Example:
Stock: $100
Buy $105 Call (OTM): $2.00
Buy $95 Put (OTM): $1.50
Total Cost: $3.50
Breakevens:
Upper: $105 + $3.50 = $108.50
Lower: $95 - $3.50 = $91.50
Scenarios at Expiration:
Stock at $115: Call worth $10, Put $0 = $6.50 profit
Stock at $100: Both expire worthless = $3.50 loss
Stock at $85: Call $0, Put worth $10 = $6.50 profit
Quick Reference: Strangle P/L
| Stock at Expiry | Call ($105) | Put ($95) | Net P/L |
|---|---|---|---|
| $115 | $10 | $0 | +$6.50 |
| $108.50 | $3.50 | $0 | Breakeven |
| $100 | $0 | $0 | -$3.50 (max loss) |
| $91.50 | $0 | $3.50 | Breakeven |
| $85 | $0 | $10 | +$6.50 |
Example: Strangle Trade
Earnings Strangle:
| Factor | Value |
|---|---|
| Stock | $100 |
| Call Strike | $105 (5% OTM) |
| Put Strike | $95 (5% OTM) |
| Call Premium | $2.50 |
| Put Premium | $2.00 |
| Total Cost | $4.50 |
| Upper Breakeven | $109.50 |
| Lower Breakeven | $90.50 |
Need stock to move more than 9.5% to profit.
A strangle buys an OTM call and OTM put at different strikes. Cheaper than a straddle but needs a bigger move. Max loss is total premium if stock stays between strikes. Use strangles when expecting very large moves in either direction.
Strangle vs Straddle
| Feature | Strangle | Straddle |
|---|---|---|
| Strikes | Different (OTM) | Same (ATM) |
| Cost | Lower | Higher |
| Breakevens | Further | Closer |
| Win Rate | Lower | Higher |
| Move Required | Bigger | Smaller |
When to Trade Strangles
Good Conditions
- Expecting very large move
- Want cheaper entry than straddle
- Major uncertainty event
- IV relatively low
Bad Conditions
- Stock unlikely to move significantly
- IV already elevated
- No clear catalyst
- Just gambling
Short Strangle
What It Is
Sell OTM call + sell OTM put. Collect premium.
Profit Zone
Profit if stock stays between strikes.
Risk
Unlimited on upside (short call), substantial on downside (short put).
Strangle Greeks
| Greek | Long Strangle |
|---|---|
| Delta | Near zero |
| Gamma | Positive (benefit from moves) |
| Theta | Negative (time decay hurts) |
| Vega | Positive (IV rise helps) |
Common Mistakes
-
Strikes too far OTM – Very cheap but very low probability.
-
IV too high – Overpaying for premium, IV crush hurts.
-
No catalyst – Random strangles rarely pay off.
-
Holding through IV crush – Exit after event if stock moves.
How JournalPlus Tracks Strangles
JournalPlus logs strangle trades with both legs, tracking breakevens and analyzing whether your strangle selections on major events are profitable.
