Both a long straddle and a long strangle profit from a large move in either direction — you're long volatility. The difference is which strikes you buy.
Long straddle
Buy an ATM call and an ATM put at the same strike. Costs more (two ATM premiums) but needs a smaller move to break even. Best before a known catalyst (results, budget, policy).
Long strangle
Buy an OTM call and an OTM put at different strikes. Cheaper than a straddle, but needs a bigger move to profit because both legs start out-of-the-money.
| Straddle | Strangle | |
|---|---|---|
| Strikes | Same (ATM) | Different (OTM) |
| Cost | Higher | Lower |
| Move needed | Smaller | Larger |
| Max loss | Total premium paid (both legs) | |
The enemy is IV crush. Buying volatility before an event that's already priced in means IV often falls after the news — your options can lose value even if the stock moves. Buy vol when it's cheap, not when everyone expects fireworks.
Which to choose
- Straddle — you expect a sharp move and want the smaller breakeven; willing to pay more.
- Strangle — you expect a very large move and want a cheaper entry.
Compare a straddle and a strangle side-by-side in House of Trading — breakevens, cost and payoff — before you commit.