Strangle is one of the key option strategies based on profiting from low or high market volatility. When the market is in a flat or a triangle and an investor expects an active market movement after the breakout, the purchase of a strangle may be a good idea. On the other hand, when the market can go into a consolidation or volatility is too high and is likely to decrease, an investor can sell a strangle. The essence of the strategy lies in the simultaneous buying or selling the call and put options on one asset with different strikes.

Strangle option strategy is not limited to the use of a single option as in call and put options, when the profit is made from the unidirectional price movement. When there’s no obvious trend in the market a strategy based on the simultaneous purchase of call and put options can become very attractive.

If the market is in a flat or triangle for a long time, then the price may move rapidly in any direction after breaking through this price range. If we are not sure about the direction the market will move and / or volatility is extremely low, we can buy a strangle. If we believe the price will remain in the price range for some time, or the implied volatility is extremely high, a short strangle may be interesting.

Options Glossary