A Strangle is an options trading strategy used when you think the price of a stock will move a lot, but you’re not sure in which direction—up or down.
Think of it like this:
You bet that a cricket match will either be a huge win or a big loss, not a close game. You’re not choosing a side—you just expect big action.
How Does a Strangle Work?
A Strangle involves two option contracts:
- A Call Option (betting the price will go up)
- A Put Option (betting the price will go down)
Both have the same expiry date but different strike prices.
Types of Strangle Strategies
1. Long Strangle
You buy both:
- A Call Option (above current price)
- A Put Option (below current price)
Used when you expect high volatility — like company results, budget announcements, or major news.
Limited loss, unlimited profit (if the move is big)
Example:
Stock is at ₹100
Buy Call at ₹110 + Put at ₹90
If stock jumps to ₹130 or falls to ₹70 — you earn big
If stock stays at ₹100 — you lose the premium paid
2. Short Strangle
You sell both:
- A Call Option (above current price)
- A Put Option (below current price)
Used when you expect the stock will not move much — stay within a tight range.
Limited profit, unlimited risk
Example:
Stock is at ₹100
Sell Call at ₹110 + Put at ₹90
If stock stays between ₹90–₹110, you keep the premium
If stock jumps/falls heavily — big loss
Benefits of a Long Strangle
- Low cost entry – cheaper than buying just a call or put near the current price
- Profit from big moves in either direction
- Limited loss = total premium paid
- Great for volatile markets
Risks of Strangle
- If the stock doesn’t move much, both options may expire worthless
- Loss is limited to the total premium paid, but still a loss
When to Use a Strangle?
- Around earnings announcements
- Before budget or policy events
- When charts show high potential movement, but no clear direction
Real-Life Example
Tanya expects Nifty to move sharply after the RBI meeting but isn’t sure up or down.
Nifty is at 19,000. She buys:
- A Call at 19,300
- A Put at 18,700
If Nifty rises to 19,800 or falls to 18,200, she makes money.
If Nifty stays flat, she loses only the premium.
Conclusion
The Strangle Option Strategy is perfect for uncertain but volatile situations. It helps traders take advantage of big price moves in either direction, while keeping losses limited. It’s simple, powerful, and often used by smart options traders.
