The holder of a strangle is long a call struck at K2 and long a put struck at K1 lower than K2. Both options have the same maturity T and are often out-of-the-money.


As is the case for straddles, strangles are combinations adapted to investors expecting volatility of the underlying stock to increase.


An investor would prefer to buy a strangle instead of a straddle if he believes there will be a large stock move by maturity, i.e. the investor is even more bullish on volatility. The investor would realize a better profit from this strategy since the premium is much lower than the one paid for a straddle.


Strangles also enable investors to trade in volatility. It is interesting to note that a strangle is less sensitive to volatility than a straddle. Indeed, the Vega of out-of-the-money options is lower than the Vega of at-the-money options. Then, the Vega of a strangle, which is the sum of the Vegas of the options composing the strategy, is lower than the Vega of a straddle. The holder of a strangle is obviously long volatility.


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