Strangle
An options strategy buying (or selling) an OTM call and OTM put at different strikes but the same expiration, cheaper than a straddle but requiring a larger move to profit.
Formula
Max profit (short) = Premium collected | Break-even: Strike_call + Premium / Strike_put − Premium
A long strangle buys an OTM call and an OTM put — both with the same expiry but different strikes. It costs less than a straddle but requires a larger underlying move to reach profitability.
A short strangle sells both OTM legs, collecting premium from two decaying options. Profits when the underlying stays between the two strikes at expiration. This is one of the most popular premium-selling strategies because OTM options have high probability of expiring worthless.
Example
With SPY at $525, a trader sells the $535 call for $2.10 and the $515 put for $2.20, collecting $430 total. The position profits fully if SPY stays between $515 and $535 at expiry.
Related Terms
Call Option
An options contract giving the buyer the right to purchase the underlying asset at the strike price before or on expiration.
BeginnerImplied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
AdvancedIron Condor
A four-leg options strategy that sells an OTM call spread and an OTM put spread simultaneously, profiting when the underlying stays range-bound.
AdvancedPut Option
An options contract giving the buyer the right to sell the underlying asset at the strike price before or on expiration.
BeginnerStraddle
An options strategy involving the simultaneous purchase (or sale) of a call and a put at the same strike and expiration, betting on large moves (or low volatility).
Advanced