Strangle Option Strategy with Example

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Strangle Option Strategy with Nifty Example

What is a Strangle Strategy?

A Strangle is a neutral options strategy where a trader:

  • Buys one OTM Call Option

  • Buys one OTM Put Option

  • Same expiry date

  • Different strike prices

This strategy is used when you expect a big move in the market, but you are not sure about the direction — similar to a Straddle — but with lower cost and wider break-even range.

Example: Nifty Strangle Strategy

  • Nifty Current Level: 25600

  • Buy 25800 CE @ 120

  • Buy 25400 PE @ 120

Total Premium Paid

120 (Call) + 120 (Put) = 240 points

So your total investment = 240 points

Break-Even Calculation

Upper Break-Even:

Call Strike + Total Premium
25800 + 240 = 26040

Lower Break-Even:

Put Strike – Total Premium
25400 – 240 = 25160

So Nifty must move:

  • Above 26040 OR

  • Below 25160
    to start generating profit.

Maximum Profit

✔️ Unlimited Profit Potential
If market makes a strong move in either direction.

Maximum Loss

❌ Limited to Total Premium Paid
= 240 points

If Nifty expires between 25400 and 25800, both options may expire worthless.

  • Lower cost than Straddle

  • Wider loss zone in the middle

  • Profits only when strong breakout happens

When to Use Strangle Strategy?

✔️ Before major news or events
✔️ When expecting volatility expansion
✔️ When premiums of ATM options are expensive
✔️ When implied volatility is moderate

Straddle vs Strangle (Quick Comparison)

Feature    Straddle      Strangle
      Strike Price    Same (ATM)        Different (OTM)
    Premium Cost        Higher               Lower
 Break-Even Distance         Closer               Wider
            Risk Higher Premium         Lower Premium
   Move Required       Moderate               Strong

Advantages (Pros)

✅ Lower cost compared to Straddle
✅ Limited risk
✅ Unlimited profit potential
✅ Good for event trading

Disadvantages (Cons)

❌ Requires strong move to become profitable
❌ Time decay works against position
❌ Loss if market remains range-bound
❌ Wider break-even points

Professional Trading Insight

  • Strangle works best when volatility expands after entry

  • Avoid entering when IV is extremely high

  • Partial profit booking after breakout is recommended

  • Strike selection should match expected move range

Final Conclusion

The Strangle Strategy is ideal when:

  • You expect a big move

  • You want lower premium cost

  • You accept wider break-even levels

In our example:

  • Risk = 240 points

  • Break-even = 25160 & 26040

  • Profit = Unlimited

If Nifty makes a strong directional breakout, this strategy can generate powerful returns.


#OptionsTrading #StrangleStrategy #NiftyTrading #DerivativesMarket
#VolatilityBreakout #StockMarketIndia #OptionsEducation

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