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Glossary

Strangle

A strangle is an options strategy that combines buying or selling one out-of-the-money call and one out-of-the-money put on the same underlying asset, with the same expiration date.

What Is a Strangle?

A strangle is an options position built from two contracts on the same underlying asset with the same expiration date: an out-of-the-money call option and an out-of-the-money put option. Because both options are out of the money, the strike prices sit on opposite sides of the current market price, with the call strike above it and the put strike below it. This makes a strangle cheaper to establish than a straddle, which uses the same strike price for both options.

How a Strangle Works

There are two basic forms. A long strangle involves buying both options. The trader pays a combined premium and profits if the underlying moves far enough in either direction to offset that cost before expiration. Maximum loss is limited to the total premium paid, and it occurs if the asset finishes between the two strike prices.

A short strangle involves selling both options and collecting the combined premium. The seller profits if the asset stays between the two strikes until expiration. Losses can be large if the price moves sharply beyond either strike, because the seller has obligations on both sides.

An Illustrative Example

Suppose a stock trades at 100. A trader buys a call with a strike of 110 and a put with a strike of 90, paying a combined premium of 6 per share. The position breaks even if the stock finishes above 116 or below 84 at expiration. Between 90 and 110, both options expire worthless and the trader loses the full premium. Outside the breakeven points, the position gains value as the stock moves further away.

Why It Matters to Investors

Strangles are used mainly to express a view on volatility rather than direction. A long strangle suits situations where a large price move is expected but its direction is uncertain, such as around major announcements. A short strangle reflects an expectation that prices will stay within a range. Both strategies depend heavily on implied volatility and time decay, and both carry risks that investors should understand before using them. This entry is for educational purposes only.

Updated October 29, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Out of the Money (OTM)

An option is out of the money when exercising it immediately would produce no intrinsic value: a call's strike price is above the market price, or a put's strike is below it.

Call Option

A call option is a contract that gives its buyer the right, but not the obligation, to buy a specified quantity of an underlying asset at a set price before or on a set expiration date.

Put Option

A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a set price before or on a set expiration date.

Straddle

A straddle is an options strategy that pairs a call and a put with the same strike price and expiration date, seeking to profit from a large price move in either direction.

Implied Volatility (IV)

Implied volatility is the level of future price movement that the market expects for an asset, inferred backward from the current market price of its options.

Time Decay

Time decay is the gradual loss of an option's time-based value as its expiration date gets closer, all else being equal, so the contract becomes less valuable over time.

Breakeven Point

The breakeven point is the level of sales or output at which total revenue equals total costs, so a business makes neither a profit nor a loss.