What Are Straddle and Strangle Option Strategies

Short answer: A straddle and a strangle are strategies that profit from a big move in either direction; a straddle uses the same strike for a call and put, while a strangle uses different, out-of-the-money strikes.

The Long Straddle

A long straddle means buying both a call and a put at the same strike price and expiry. You profit if the underlying makes a large move in either direction, big enough to cover the combined premium of both options. It is a bet on volatility, not direction.

The Long Strangle

A long strangle is similar but uses out-of-the-money strikes: a call above the current price and a put below it. Because both options are out of the money, the total premium is cheaper than a straddle, but the underlying must move even further to become profitable.

When Traders Use Them

These strategies suit situations where a big move is expected but the direction is unclear, such as before major results, budgets, or policy events. The trader wins if the move is large enough, regardless of which way it goes.

The Main Risk

The danger is that the underlying stays calm. If it does not move enough, both options lose value to time decay and the trader loses the premiums paid. Buying straddles or strangles into high implied volatility is especially risky, because a post-event volatility crush can sink both options even if the price moves.

Short Straddles and Strangles

The reverse positions, selling a straddle or strangle, profit when the underlying stays range-bound and volatility falls, collecting premium from both options. But these carry large, open-ended risk if the market makes a big move, so they are advanced strategies needing strict risk control.

Practical Cautions

Long straddles and strangles need a move large enough to beat both premiums and time decay, so they are not free bets on volatility. Check implied volatility before entering, avoid overpaying ahead of events, and size positions carefully, since these can lose value quickly in quiet markets.

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.