The Strangle involves the following steps:
buying OTM strike puts and
buying OTM strike calls with the same expiration date.
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.
The risk profile of a Strangle is as follows:
|Maximum risk||Net debit of the spread (that is, what you pay)|
|Breakeven on the downside ...|