Straddles and Strangles, Explained

Published on: 2026-03-24 · #options

Not financial advice. Options can turn money into a lesson very quickly.

A straddle and a strangle are both basically the same idea:

  • You think the stock is going to move a lot, but
  • you’re not sure which direction.

So you buy a call and a put.

That’s the concept. The part people forget is: you’re not buying direction, you’re buying volatility (and time).

Straddle (At-The-Money)

A long straddle is:

  • Buy 1 call at (or near) the current price
  • Buy 1 put at (or near) the current price
  • Same expiration

What you get

  • Big upside if the stock rips up
  • Big upside if the stock nukes down
  • Maximum loss is what you paid (the premiums)

What you pay for

  • It’s expensive, because at-the-money options have a lot of time value. Watch the theta, please.

Breakevens (roughly)

If the stock is at $100 and you pay $6 for the call and $6 for the put:

  • Total cost: $12
  • Breakeven up: $112
  • Breakeven down: $88

If the stock doesn’t move enough, theta eats your lunch. Politely. Over time.

Strangle (Out-Of-The-Money)

A long strangle is:

  • Buy an out-of-the-money call
  • Buy an out-of-the-money put
  • Same expiration

What you get

Same basic shape, but:

  • Cheaper upfront
  • Needs a bigger move to profit

Example

Stock at $100:

  • Buy $105 call for $3
  • Buy $95 put for $3
  • Total cost: $6

Breakevens are farther out:

  • Up: $111 (105 + 6)
  • Down: $89 (95 - 6)

Cheaper, but you’re asking the stock to do more.

When People Use Them

Common use case: events

  • Trump
  • Earnings
  • FDA decisions (Bio stocks are crazy)
  • CPI releases (if you hate peace)

The trap: event options often have high implied volatility. If you buy the straddle/strangle after IV is already inflated, you can be right about direction and still lose money because IV collapses after the event. (IV crush)

The One-Sentence Summary

  • Straddle: costs more, needs a smaller move.
  • Strangle: costs less, needs a bigger move.

If you remember nothing else: these strategies pay you for the stock moving more than the market already priced in.

Remember there are algorithms and hedge funds that do this for a living. But don’t be afraid, some traders do this consistently (not me lol).