A strangle is an options strategy where the investor holds a position in both a call and a put option of the same underlying security, same expiration date, but at different strike prices. A long strangle aims to make a profit when stock prices are expected to go up or down significantly and a short strangle earns a return when the stock prices are expected to stay stable or slight price change.
A long strangle is a strategy when you expect the price of the underlying security will go up or down significantly within a certain time period. This strategy consists of a long call with a higher strike price and a long put with a lower strike price in the same expiration. This strategy is established for a net debit (or net cost) and profits if the underlying security rises above the upper break-even point or falls below the lower break-even point at expiration.
A short strangle is a strategy when you expect the price of the underlying security will stay stable or move in a narrow range between the breakeven points within a certain time period. This strategy consists of a short call with a higher strike price and a short put with a lower strike price in the same expiration. This strategy is established for a net credit and profits if the stock price is between the two break-even prices at expiration.
Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.