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Long and short strangles, explained

Two out-of-the-money options at once: a call above and a put below, same expiry. Buy both and you need a large move in either direction. Sell both and you need no move at all.

Construction
Call above + put below, same expiry, both long or both short
Outlook
Non-directional — about the size of the move, not its direction
Premium
Paid on one leg, collected on another
Complexity
3 of 3

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What it is

A strangle takes a view on magnitude rather than direction. The long version buys both legs: it costs two premiums and pays off if the underlying moves far enough, either way, to cover them. The short version sells both and keeps the premiums if it does not.

The long strangle's risk is defined and modest — the most you can lose is the two premiums. Its difficulty is that a large move is required just to reach break-even, and time decay works against both legs simultaneously. A significant move that arrives too slowly still loses money.

The short strangle inverts everything. The gain is capped at the two premiums collected; the loss is not capped at all. On the call side there is no ceiling on how far the underlying can rise, so there is no arithmetic limit on the loss. This is one of very few structures on this site whose worst case cannot be written down as a number, and it should be read carefully before anything else on the page.

How it works

  1. Choose both strikes, straddling the current price

    A call above and a put below, usually placed at a similar distance from the current price. Both out of the money, sharing one expiry.

  2. Decide which side you are on

    Buying both costs the two premiums and needs a large move. Selling both collects them and needs stillness. These are opposite positions with opposite risk shapes.

  3. Work out both break-evens

    The call strike plus the total premium, and the put strike minus it. For a long strangle those are the points past which it starts making money; for a short one, past which it starts losing.

  4. Know your worst case before entering

    For a long strangle, the total premium paid. For a short strangle, unlimited on the upside and very large on the downside — a number which, on the call side, cannot be stated.

The payoff

$75$90$105$120$135$090110$86$114
Max profit
Uncapped
Max loss
−$400
Break-evens
$86 · $114
A long strangle: $90 put and $110 call, $2.00 each. Loss capped at the $400 paid; break-evens at $86 and $114. The short version is this diagram inverted, with the loss uncapped. This is the position at expiry only. Before expiry the same structure is worth something different, driven by the time remaining and by implied volatility — neither of which a payoff diagram shows.
Want to draw a different combination of strikes and premiums? The options payoff calculator takes any set of legs you enter and plots them. It runs in your browser and nothing you type is transmitted.

Worked example

XYZ is a placeholder, not a real security. Every guide in this section uses it at $100 so the structures can be compared directly.

XYZ trades at $100. You buy the $90 put for $2.00 and the $110 call for $2.00, both thirty days out. Total cost: $400.

If XYZ finishes between $90 and $110, both legs expire worthless and the whole $400 is lost. This is the most likely single outcome for a long strangle and it is the maximum loss.

If XYZ finishes at $125, the call is worth $15 and the put nothing. Against $400 paid, that is $1,100.

Break-evens are $86 and $114. XYZ has to move fourteen per cent in one direction or fourteen in the other before this position returns a cent.

Sold instead, every sign flips: $400 collected, kept in full between $90 and $110, and losing beyond $86 or $114. At $160 the short call alone is down $5,000, and there is no level at which that stops.

Both sides of it

What it gives you

  • Long: risk is limited to the premium paid, with an uncapped payoff on a large move
  • Long: no directional view needed — either direction works
  • Short: collects two premiums at once
  • Short: profits anywhere in a wide range between the strikes

What it costs you

  • Long: needs a substantial move merely to break even
  • Long: both legs decay simultaneously, and time is continuously against the position
  • Short: the loss on the call side has no arithmetic ceiling
  • Short: brokers require significant margin, and that requirement grows as the position moves against you
  • Short: a gap through a strike leaves no opportunity to react

What assignment does

Only relevant to the short version, where either leg can be assigned once it moves into the money — delivering a hundred shares short on the call side or long on the put side. Because neither leg is covered, assignment arrives as an unhedged share position with an immediate margin requirement attached.

Frequently asked questions

What is the difference between a strangle and a straddle?
The strikes. A straddle uses the same strike for both legs, normally at the money; a strangle uses two different out-of-the-money strikes. The strangle therefore costs less to buy and collects less to sell, and needs a bigger move to reach break-even. The shapes are otherwise the same, with the strangle showing a flat section between its strikes where the straddle shows a single point.
Why is a short strangle considered high risk?
Because the loss on the call leg has no arithmetic limit. A share price can rise without bound, so there is no worst-case figure to write down, and the loss can exceed the premium collected many times over. The downside leg is bounded only because a price cannot fall below zero — and that bound is still very large. Margin requirements also increase as the position moves against you, which can force a close at the worst moment.
Why did my long strangle lose money when the stock moved?
Most likely because it did not move far enough, or moved too slowly. Both legs need to cover both premiums before the position clears anything, and both are decaying the whole time. A move that stops short of the break-even, or arrives after most of the time value has gone, leaves the position down even though the direction was right.
Which strikes are used for a strangle?
Both out of the money, typically placed at a similar distance either side of the current price. Strikes closer in cost more to buy and collect more to sell, with nearer break-evens; strikes further out do the opposite. Where to place them is a decision this page deliberately does not make.

Related guides

These guides explain how each structure is built and how it behaves. Nothing here is a suggestion to buy or sell anything, no security is named, no figure is quoted from any market, and no structure is presented as better than another — which one suits a situation is not a question this page can answer.

⚠ Important disclaimer

These calculators are provided strictly for educational and informational purposes. They perform arithmetic on figures you enter. Nothing on these pages is financial, investment, trading, legal or tax advice, nor a recommendation to buy, sell or hold any security, derivative, commodity or cryptocurrency.

The creator is not a registered investment adviser, research analyst or broker with the SEC, FINRA, CFTC, NFA, any U.S. state securities regulator, or SEBI (as an Investment Adviser or Research Analyst). Trading involves substantial risk of loss — you can lose some or all of your capital, and with leveraged instruments you can lose more than you deposit.

Contract specifications, lot sizes and margin rates shown here are seeded from published standards, are editable, and may be out of date or wrong for your broker. Exchanges revise lot sizes and margin requirements, and brokers routinely impose more than the regulatory minimum. Verify every figure against your own broker before acting on it. These tools carry no warranty of any kind and may contain errors.

You are solely responsible for your own decisions. Read the full legal disclaimer →