What is a strangle?

A strangle is an options strategy where you hold positions in both a call option and a put option for the same underlying security and expiration date but with different strike prices.

Long Strangle: This strategy is used when you expect the stock price to move significantly in either direction. It involves buying a call option with a higher strike price and a put option with a lower strike price, both with the same expiration date. This strategy requires a net debit (or cost) and profits if the stock price moves above the upper break-even point or below the lower break-even point by expiration.

Short Strangle: This strategy is used when you expect the stock price to remain stable or move within a narrow range between the strike prices. It involves selling a call option with a higher strike price and a put option with a lower strike price, both with the same expiration date. This strategy results in a net credit and profits if the stock price stays between the two break-even points by expiration.

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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.