A strangle is like a straddle but with the call and put at different strike prices, usually both out-of-the-money.
Straddle: Buy $200 call and $200 put = $10 total
Strangle: Buy $210 call and $190 put = $4 total
Strangled are cheaper to enter because both sides are OTM. But the stock must move more for you to profit.
You're betting on a big move. Works well before earnings.
Profits if stock rises above $214 or falls below $186 (assuming $4 cost).
Time decay works against you, so breakeven points are wider than a straddle.
You're betting on the stock staying between the two strikes. Profits from time decay.
Risk is unlimited, but the further out-of-the-money the strikes, the more likely it is they'll expire worthless.
Long: Before catalysts (earnings, FDA approvals) when you expect big moves.
Short: When IV is high and you expect mean reversion to low-volatility trading.
If one side goes ITM:
Related: Straddle, Long Strangle, Short Strangle, Earnings Volatility
