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.

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.

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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.

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.

Option Strangle (Long Strangle) Explained | Online Option Trading Guide

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. To employ the strangle option strategy, a trader enters into two option positions, one call and one put.

The trader will make money if the price of the stock starts to move outside the range. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Short Strangle Option Strategy - The Options Playbook

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