Strangle Trading Strategy
I. Definition:
The strangle trading strategy refers to the options trading market where traders buy put options at lower price levels and buy call options on the same underlying asset at higher price levels.
II. Profit Method:
Trading parties can be divided into buyers and sellers, each executing opposite operations. The profit logic of this strategy is roughly similar to the long straddle strategy. That is, in actual trading, if the buyer executes this strategy, regardless of which direction the underlying price moves, they can obtain unlimited upside potential, while losses from downside are limited to the cost of the option premium.
The buyer does not need to pay excessive attention to the direction of the underlying asset price change, because whether it rises or falls, their returns can exceed costs, only with different return levels. Unlike the long straddle strategy, the strangle trading strategy is more suitable for extreme market conditions. Traders can leverage market volatility to amplify returns.
It should also be noted that the seller's returns come from the option premiums lost by the buyer, but in cases of severe market volatility, losses may also be amplified.
III. Trading Details:
Assuming buying 1 call option is Leg 1 and buying 1 put option is Leg 2, then (the logic and rules are roughly similar to the long straddle strategy):
The strategy executor's maximum loss is the net strategy price, while maximum profit is unlimited.
Of course, the conditions for the above results to hold are as follows:
1) Number of legs = 2, i.e., this strategy has only 2 legs
2) Leg 1 trading instrument ≠ Leg 2 trading instrument, i.e., both legs are option contracts, specifically call and put options respectively
3) Leg 1 expiry date = Leg 2 expiry date, i.e., both legs have the same expiry date
4) Leg 1 quantity = Leg 2 quantity, i.e., both legs have the same quantity
5) Leg 1 strike price ≠ Leg 2 strike price, i.e., the two legs have different strike prices
6) Leg 1 trading direction = Leg 2 trading direction, both legs have the same trading direction
7) Both legs have the same underlying asset
Note 1: About Net Strategy Price
Long net strategy price = Leg 1 call option premium (seller's quote) + Leg 2 put option premium (seller's quote)
Short net strategy price = Leg 1 call option premium (buyer's quote) + Leg 2 put option premium (buyer's quote)
Note 2: About Margin Rules
Long: No additional margin requirements
Short: Must meet all margin requirements for "short put option + short call option"
Note 3: About Returns Curve Chart
IV. Specific Trading Example:
Leg 1: Buy Bitcoin call option, expiry date November 26, strike price $55,000
Leg 2: Buy Bitcoin put option, expiry date November 26, strike price $45,000
Leg 1 price: $500
Leg 2 price: $1,500
Bitcoin spot price: $50,000
Traders enter the strangle strategy under the following conditions:
They expect the asset price to fluctuate significantly but are unsure of the direction.
They want to buy volatility to seek returns from uncertainty.
The corresponding profit/loss scenarios are as follows —
Case 1: Bitcoin spot price remains unchanged or only fluctuates slightly, assumed to be $50,500
Leg 1 returns: Premium cost = -$500
Leg 2 returns: Premium cost = -$2,000
Total returns: -500 - 2,000 = -$2,500
Case 2: Bitcoin spot price rises, assumed to be $60,000
Leg 1 returns: Premium cost + (spot price - strike price) = -500 + (60000 - 55000) = $4,500
Leg 2 returns: Premium cost = -$2,000
Total returns: 4500 - 2000 = $2,500
Case 3: Bitcoin spot price falls, but not enough to offset costs, assumed to be $44,500
Leg 1 returns: Premium cost = -$1,000
Leg 2 returns: Premium cost + (strike price - spot price) = -2000 + (45000 - 43500) = $500
Total returns: -1000 + 500 = -$500
Disclaimer
This article may contain product-related content not applicable to your region. This article is intended to provide general information only and does not assume responsibility for any factual errors or omissions herein. This article represents only the author's personal views and does not represent the views of OKX. This article is not intended to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves high risk, may fluctuate significantly, and may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions about your specific situation, please consult your legal/tax/investment professional. The information appearing in this article (including market data and statistics, if any) is for general reference only. Although we have taken all reasonable precautions in preparing these data and charts, we assume no responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in full, or excerpts of 100 words or less from this article may be used, provided that such use is non-commercial. Any reproduction or distribution of the entire article must prominently state: "Copyright © 2025 OKX. Used with permission." Permitted excerpts must cite the article title and include attribution, for example "Article Title, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works or other uses of this article are not permitted.
Show More
Recommended Reading
Bull Call Spread Strategy Explained
I. Definition: The long bull call spread options trading strategy refers to the options trading market where traders buy call options at lower strike prices and sell call options at higher strike prices. II. Profit Method: For the buyer, if operating according to this strategy, buying at the lower strike price and selling at the higher strike price can earn returns in the form of price difference. Of course, maximum returns are also limited by the higher strike price. Under normal circumstances, trading
April 25, 2024
Bear Put Spread Strategy Explained
I. Definition: The bear put spread strategy refers to the options trading market where buyers reduce the holding cost of corresponding option products because they estimate the price of the underlying asset will experience moderate or significant declines. II. Profit Method: The spread of this strategy is achieved by buying put options while simultaneously selling put options with lower strike prices, same expiry dates, and same quantities of the underlying asset. The maximum profit generated by this strategy equals the difference between the two strike prices
April 25, 2024
Protective Put Strategy Explained
I. Definition: The protective put strategy is an options trading strategy. As the name suggests, this is a trading strategy with risk hedging properties. Specifically, this strategy involves traders buying 1 unit of an underlying asset while simultaneously buying 1 put option on that asset, aimed at providing protection against price declines in the purchased asset. II. Strategy Details: The protective put strategy is typically used when buyers expect the spot price of a certain asset they have purchased will rise,
April 25, 2024
Contract Spread Strategy
I. Definition: The contract spread trading strategy refers to the practice in contract trading where traders simultaneously buy and sell two related contracts. For example, a trader buys a BTC/USD contract expiring in September while simultaneously selling a BTC/USD contract expiring in December. This is a market-neutral strategy. Simply put, executing this strategy is the operation of the trading party obtaining the spread between the two contracts. II. Profit Method: Easy to understand, compared to the previous several strategies
April 25, 2024
Collar Trading Strategy
I. Definition: The collar strategy is a strategy in options trading that involves buying a put option contract while simultaneously selling an out-of-the-money (OTM) call option contract, where both contracts have equal quantities and the put option's strike price is lower than the call option's strike price. Typically, traders using the collar strategy already hold a long or short position in an underlying asset, and executing this strategy can protect the underlying asset's holding returns and hedge risk.
April 25, 2024
Butterfly Strategy Explained
I. Definition: The butterfly strategy is a common options trading strategy, named for its profit/loss graph resembling a butterfly. The butterfly strategy is generally suitable for situations with smaller market fluctuations. Specifically, when investors combine micro and macro factors to comprehensively judge that the market is unlikely to show significant rises or falls, the butterfly strategy is relatively an ideal choice. II. Strategy Details: According to contract types, the long butterfly strategy can be divided into long call butterfly strategy and long put butterfly strategy
April 25, 2024
