Strangles
The Strangle involves the following steps:
Step 1. | buying OTM strike puts and
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Step 2. | buying OTM strike calls with the same expiration date.
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This will be a net debit transaction given that you are paying for equal numbers of calls and puts. Because you are buying OTM options where there is no Intrinsic Value, the Strangle is a cheaper alternative to the Straddle. However, it also has a slightly different risk profile, although the basic rules are almost identical.
Strangle
The risk profile of a Strangle is as follows:
| Strangle | |
| Maximum risk | Net debit of the spread (that is, what you pay) |
| Maximum reward | Unlimited |
| Breakeven on the downside ... |
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