Definition
Strangle vs Straddle
A straddle uses the same at-the-money strike for both legs, while a strangle uses different out-of-the-money strikes — cheaper but needing a bigger move.
In a straddle you trade the call and put at the same at-the-money strike, giving maximum sensitivity but higher premium. In a strangle you trade an out-of-the-money call and put at different strikes, lowering the cost (or raising the credit for sellers) but widening the range price must clear to profit.
Indian traders pick between them based on conviction and cost: long straddles for an expected big move with a tighter break-even, long strangles for a cheaper bet needing a larger swing. For sellers, short strangles offer a wider safe zone than short straddles but collect less premium.
Related terms
- Long StraddleA long straddle buys a call and a put at the same strike to profit from a big move in either direction.
- Short StraddleA short straddle sells a call and a put at the same strike to profit when the underlying stays calm and range-bound.
- Long StrangleA long strangle buys an out-of-the-money call and an out-of-the-money put to profit from a large move at lower cost.
- Short StrangleA short strangle sells an out-of-the-money call and an out-of-the-money put to earn premium in a quiet market.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.