Strangle

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Strangle

Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument's price.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Strangle Strategy

An option strategy in which one buys two out-of-the-money options (usually one call and one put) on the same asset at different strike prices. One profits from a strangle position when there is a large price movement on the underlying asset, regardless of the direction. This is because one of the options will become in the money, so long as the price moves in one direction or the other. Loss only occurs if the price of the underlying asset remains largely the same.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Strangle.

A strangle is a hedging strategy in which you buy or sell a put and a call option on the same underlying instrument with the same expiration date but at different strike prices that are equally out-of-the-money.

That is, the strike price for a put is above the current market price of the stock, stock index, or other product, and the strike price for a call is below the market price.

If you buy a strangle, you hope for a large price move in one direction or another that would allow you to sell one of the contracts at a significant profit. If you sell a strangle, you hope there's no significant price move in either direction so that the contracts expire out-of-the-money and you keep the premium you received.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
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