Strangle Options Strategy Explained

Options trading allows traders to design strategies for every type of market condition. Among the most popular volatility strategies is the Strangle Strategy, which is very similar to the Straddle but slightly cheaper to implement.

In this article, we’ll cover:

• What is a Strangle strategy?
• Types of Strangles
• Payoff structure explained
• Examples of Long and Short Strangles
• When to use this strategy
• Advantages and disadvantages
• Strangle vs. Straddle
• Real-life applications
• Key takeaways

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🔹 What is a Strangle Strategy?

A Strangle is an options trading strategy where a trader buys (or sells) a Call option and a Put option with different strike prices but the same expiry date.

👉 The Call is typically bought above the current market price (OTM), and the Put is bought below the current market price (OTM).

The purpose is to profit from large price movement in either direction, while reducing the premium cost compared to a Straddle.

• If the price moves up → Call gains.
• If the price moves down → Put gains.
• If the price stays flat → Both options lose value.

📌 Simply put: A Strangle is a volatility strategy with cheaper entry cost than Straddle.

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🔹 Types of Strangles

There are two main types of Strangle strategies:

1. Long Strangle

• Buy 1 OTM Call Option
• Buy 1 OTM Put Option
• Profit from big move in either direction
• Loss = limited to premium paid

👉 Best for high volatility expectations.

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2. Short Strangle

• Sell 1 OTM Call Option
• Sell 1 OTM Put Option
• Profit if stock stays range-bound
• Risk = unlimited if stock makes large move

👉 Best for low volatility expectations.

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🔹 Payoff Structure

Long Strangle:

• Maximum Loss = Premiums Paid.
• Maximum Profit = Unlimited (on upside) or very high (on downside).
• Breakeven Points = Upper Strike + Premium, Lower Strike – Premium.

Short Strangle:

• Maximum Profit = Premium Received.
• Maximum Loss = Unlimited (due to naked call risk).
• Breakeven Points = Same as above.

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🔹 Example of a Long Strangle

Suppose Nifty is trading at 20,000.

A trader expects a huge move due to the Union Budget announcement.

He buys:

• 20,300 Call @ ₹100
• 19,700 Put @ ₹120

👉 Total Premium Paid = ₹220

Outcomes:

• If Nifty rises to 20,700 → Call Value = ₹400, Put worthless → Net Profit = ₹400 – ₹220 = ₹180 Profit.
• If Nifty falls to 19,300 → Put Value = ₹400, Call worthless → Net Profit = ₹400 – ₹220 = ₹180 Profit.
• If Nifty stays at 20,000 → Both expire worthless → Loss = ₹220.

📌 Breakeven Points = 20,300 + 220 = 20,520 and 19,700 – 220 = 19,480.

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🔹 Example of a Short Strangle

Now, suppose a trader believes Nifty will remain range-bound around 20,000 for the next week.

He sells:

• 20,300 Call @ ₹100
• 19,700 Put @ ₹120

👉 Total Premium Collected = ₹220

Outcomes:

• If Nifty remains between 19,700 – 20,300 → Both expire worthless → Profit = ₹220.
• If Nifty moves to 20,700 → Loss = (400 – 220) = ₹180.
• If Nifty falls to 19,300 → Loss = (400 – 220) = ₹180.

📌 Maximum profit is limited to ₹220, but losses can grow much larger.

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🔹 When to Use Strangle?

Long Strangle ✅

• Before events like Budget, Earnings, RBI/Fed announcements.
• When IV (implied volatility) is low before a big news event.
• When you are unsure of the direction but expect strong moves.

Short Strangle ✅

• In low-volatility, range-bound markets.
• When IV is very high and you expect it to fall.
• With proper hedging to control unlimited risk.

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🔹 Advantages of Strangle

Long Strangle

• Lower cost than Straddle.
• Unlimited profit potential.
• Works in both upward and downward big moves.

Short Strangle

• Generates consistent income in sideways markets.
• Benefits from time decay.
• Flexible adjustments possible.

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🔹 Risks of Strangle

Long Strangle

• Needs large price movement to become profitable.
• Both options may expire worthless if stock remains flat.

Short Strangle

• Unlimited risk exposure.
• Sudden news events can cause heavy losses.

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🔹 Strangle vs Straddle

Feature	Straddle (ATM)	Strangle (OTM)
Strike Prices	Same (ATM)	Different (OTM)
Cost	Higher (expensive)	Lower (cheaper)
Breakeven Range	Narrower	Wider
Profit Potential	High on small moves	Needs larger moves
Risk	Limited (long) / unlimited (short)	Same as Straddle

👉 Traders who want cheaper exposure to volatility often choose Strangles.

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🔹 Real-Life Example

📍 Infosys Earnings Case

• Infosys at ₹1,500 before results.
• Trader buys Long Strangle: ₹1,600 Call + ₹1,400 Put.
• Results cause stock to move to ₹1,650 → Call becomes profitable.
• If results disappoint and stock falls to ₹1,350 → Put becomes profitable.
• If stock stays at ₹1,500 → Both expire worthless.

This shows why Strangles are popular during earnings season.

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🔹 Adjustments in Strangle

Traders often adjust Strangles to reduce risk:

• Convert into Iron Condor → Add wings (buy further OTM options) to limit risk.
• Square off losing leg if one side is strongly trending.
• Shift strikes to adjust for volatility changes.

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🔹 Key Takeaways

• A Strangle Strategy is a cheaper alternative to Straddle for betting on volatility.
• Long Strangle = Limited risk, unlimited profit.
• Short Strangle = Limited profit, unlimited risk.
• Works best for events, earnings, and big announcements.
• Requires proper volatility analysis and timing.

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📌 Final Words

The Strangle Strategy is one of the most widely used volatility plays in options trading. It is flexible, cost-effective, and can be applied in both event-driven and calm markets.

• Use Long Strangle when you expect strong moves but don’t know the direction.
• Use Short Strangle when you expect very little movement.
• Always manage risk with stop-losses or by converting into defined-risk strategies like Iron Condor.

For beginners, the Long Strangle is safer as the risk is limited to premium paid. Advanced traders, with higher capital and margin, can explore Short Strangles for consistent income in sideways markets.

📌Disclaimer – At BullBearFin, we don’t provide trading tips but focus on helping you understand financial markets better so you can make informed decisions.

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