how does a strangle work 
strangles come in two directions strangle vs straddlestrangles and straddles are similar options strategies that allow investors to profit from large moves to the upside or downside however a long straddle involves simultaneously buying at the money call and put options where the strike price is identical to the underlying asset s market price rather than out of the money options a short straddle is similar to a short strangle with limited profit potential that is equivalent to the premium collected from writing the at the money call and put options with the straddle the investor profits when the price of the security rises or falls from the strike price just by an amount more than the total cost of the premium so it doesn t require as large a price jump buying a strangle is generally less expensive than a straddle but it carries greater risk because the underlying asset needs to make a bigger move to generate a profit 34benefits from asset s price move in either directioncheaper than other options strategies like straddlesunlimited profit potentialrequires big change in asset s pricemay carry more risk than other strategiesreal world example of a strangleto illustrate let s say that starbucks sbux is currently trading at us 50 per share to employ the strangle option strategy a trader enters into two long option positions one call and one put the call has a strike of 52 and the premium is 3 for a total cost of 300 3 x 100 shares the put option has a strike price of 48 and the premium is 2 85 for a total cost of 285 2 85 x 100 shares both options have the same expiration date if the price of the stock stays between 48 and 52 over the life of the option the loss to the trader will be 585 which is the total cost of the two option contracts 300 285 however let s say starbucks stock experiences some volatility if the price of the shares ends up at 38 the call option will expire worthlessly with the 300 premium paid for that option lost however the put option has gained value expiring at 1 000 and producing a net profit of 715 1 000 less the initial option cost of 285 for that option therefore the total gain to the trader is 415 715 profit 300 loss if the price rises to 57 the put option expires worthless and loses the premium paid for it of 285 the call option brings in a profit of 200 500 value 300 cost when the loss from the put option is factored in the trade incurs a loss of 85 200 profit 285 because the price move wasn t large enough to compensate for the cost of the options the operative concept is the move being big enough if starbucks had risen 12 in price to 62 per share the total gain would have again been 415 1000 value 300 for call option premium 285 for an expired put option 