Hi Ashish, Straddle and Strangle are two-legged option strategies.
A long straddle comprises of buying an ATM call and an ATM put, while a short straddle comprises of selling an ATM call and an ATM put.
Meanwhile, a long strangle comprises of buying an OTM call and an OTM put, while a short strangle comprises of selling an OTM call and an OTM put.
If you are new to options trading, the easiest way to remember between straddle and strangle is this: In a straddle, you buy or sell options with the same strikes; while in a strangle, you do so with different strikes.
But are direction-neutral, volatility-based option strategies.
In a long straddle/strangle, you would want the volatility to increase and the underlying to move sharply either up or down. The more the underlying swings in one direction, the larger your profit potential tends to be. Meanwhile, the maximum loss is limited to the extent of net premium paid.
In a short straddle/strangle, you would want the volatility to decrease and the underlying to stay range bound and consolidate within the confines of the strike(s). The more the underlying swings in one direction, the larger your loss can get. Meanwhile, the maximum profit is limited to the extent of net premium received.
We have extensively talked about straddles and strangles in FYERS School of Stocks. To learn in detail about these and other option strategies, click here16.
