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Strangle

Like a straddle but with the call and put at different out-of-the-money strikes — cheaper, but needs a bigger move to pay off.

A strangle involves holding a call and a put on the same underlying with the same expiration, but at different strikes: an out-of-the-money call above the current price and an out-of-the-money put below it. Because both options are OTM, a strangle costs less than a straddle, but the stock has to move further before either leg pays off.

Traders buy a strangle when they expect a big move but aren't sure which way, often around earnings or a product launch. Say a stock trades at 100; you buy the 110 call and the 90 put. If it jumps to 125 or crashes to 75, one side more than covers the combined premium. Sellers flip this to collect premium when they expect the price to stay boxed in.

The trap is time. If the stock drifts sideways, theta bleeds both legs and implied volatility usually collapses right after the event you were betting on, so even a modest move can leave you at a loss. The move has to be large and reasonably quick to beat the double premium you paid.

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