Financial Word of the Day: Strangle

Introduction

If you hang around options traders long enough, you’ll hear some terms that sound more like wrestling moves than financial strategies. Strangle is one of them. Despite the dramatic name, a strangle is actually a very logical options strategy—especially if you think something big is about to happen in the market, but you’re not sure which direction it will go.

Let’s break it down.

What Is a Strangle?

A strangle is an options strategy where an investor buys both a call option and a put option on the same stock (or ETF), with the same expiration date, but at different strike prices.

• The call option has a strike price above the current market price

• The put option has a strike price below the current market price

The goal isn’t to predict direction—up or down. The goal is to profit from volatility. If the stock makes a big enough move in either direction before expiration, one of those options can become valuable enough to offset the cost of both and generate a profit.

How a Strangle Works in Real Life

Let’s say a stock is trading at $100.

You might:

• Buy a $110 call

• Buy a $90 put

• Both expire in, say, 60 days

If the stock shoots up to $125, the call option gains value. If it crashes to $75, the put option gains value.

If the stock just kind of… wanders around between $90 and $110? Both options lose value, and you likely lose the premium you paid.

That’s the tradeoff.

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Why Use a Strangle?

A strangle is often used when:

• Earnings are coming up

• A major announcement is expected

• The market is unusually calm, but tension is building

In other words, when you think something big is coming, but you don’t know which way it’ll break.

Compared to a straddle (a similar strategy using the same strike price for both options), a strangle is usually cheaper to enter—but it requires a larger move to become profitable.

Lower cost. Higher hurdle.

How You Might Hear Strangle Used in Conversation

“I don’t know if the stock’s going up or down after earnings, but I’m expecting fireworks—so I put on a strangle.”

Or:

“The options were cheaper with a strangle, but I needed a bigger move to make it work.”

Why This Matters for Your Money

Even if you never trade options, understanding strategies like a strangle helps you think more clearly about risk, probability, and expectations.

It reinforces an important financial principle: You don’t always get paid for being right. Sometimes you get paid for being prepared.

In investing—and in personal finance—positioning matters just as much as prediction.

Bottom Line

A strangle is a strategy designed to profit from big moves, not perfect forecasts. It’s a reminder that markets reward those who understand the game they’re playing—and the costs involved in playing it.

As always, options involve risk and complexity, but learning the language puts you one step closer to making smarter, more intentional money decisions.

Because when you speak the language of money…you usually make more of it.