Strangle

1. Long Strangle 

• Overview

Long strangle is an options strategy where you buy a call and a put with different strike prices but the same expiration date. This strategy profits from large price movements in either direction, and often uses out-of-the-money options to reduce costs.

• Features

• Components

• Profit source

• Case study

Let's imagine a made-up company called TECH.

Right now, TECH's stock price is $100 per share. With its earnings report approaching and significant market disagreement on future price direction, you anticipate the stock will experience a large price movement but are unsure of the specific direction, so you decide to use a Long Strangle strategy.

You buy one Call option with a strike price of $110, paying a premium of $3 per share. Simultaneously, you buy one Put option with a strike price of $90, paying a premium of $2 per share.

2. Short Strangle 

• Overview

Short strangle is an options strategy where you sell a call and a put with different strike prices but the same expiration date. This strategy profits when the asset’s price stays near the strike price.

• Features

• Components

• Profit source

• Case study

Let's imagine a made-up company called TECH.

Right now, TECH's stock price is $100 per share. Given its recent low volatility in a stable market environment, you think the stock price will remain stable in the near future, so you decide to use a Short Strangle strategy.

You sell one Call option with a strike price of $110, receiving a premium of $3 per share. Simultaneously, you sell one Put option with a strike price of $90, receiving a premium of $2 per share.