Volatility and Range Strategies · Options Trading Guide
A long straddle or strangle buys exposure to a large move in either direction. The move must still overcome the combined premium and trading costs.
Identify the two structures
A long straddle buys a call and put with the same strike and expiration. A long strangle buys a lower strike put and a higher strike call with the same expiration. Both pay two premiums. The strangle often has a smaller initial outlay but a wider interval in which both options finish without value. Compare actual quotes instead of treating either structure as automatically superior.
Work through a straddle
Buy a 100 call for $4 and a 100 put for $3.50. Total debit is $7.50 per share, or $750 for one standard pair. Expiration breakevens are $92.50 and $107.50. At $112 the call has $1,200 intrinsic value and the put zero, leaving $450 gross profit. At $104 the position loses $350. Maximum option loss is the premium if the stock finishes at the strike.
Compare a strangle
Buy the 95 put for $2 and the 105 call for $2.50. Total cost is $450. Expiration breakevens are $90.50 and $109.50. At $112 the call is worth $700 and gross profit is $250. At $100 both options expire worthless. The smaller upfront cost does not provide the same protection against a moderate move as the straddle.
Plan the time dimension
Before expiration, both structures respond to volatility and remaining time as well as price. A rise in implied volatility can help without a completed large move, while a fall can hurt. Decide whether the objective is to trade anticipation before an event or the realised move through it. The short versions reverse the premium flow and expose the seller to substantial losses, including unlimited upside loss for an uncovered short call. They are not interchangeable income alternatives.
Try it yourself
A 90 put and 110 call cost $5 combined. At expiration the stock is $82. What is the gross result for one standard strangle?
Show the worked answer
The put has $8 intrinsic value and the call zero. The $800 payoff minus $500 cost gives $300 gross profit.
Further reading
Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.
