What Is the Difference in Cost and Risk Profile between a Straddle and a Strangle?
A Long Straddle (same ATM strike) is more expensive than a Long Strangle (different OTM strikes) because the ATM options in the Straddle have higher intrinsic and extrinsic value. The higher cost of the Straddle means the underlying asset must move further to reach the break-even points, making the Strangle a lower-cost, lower-probability trade.
The risk profile for both long strategies is limited to the premium paid, but the Strangle requires a larger price movement to become profitable.
Glossar
Long Straddle
Structure ⎊ This strategy involves the simultaneous purchase of an at-the-money call and an at-the-money put option on the same underlying crypto derivative.
Straddle
Strategy ⎊ A straddle is an options trading strategy involving the simultaneous purchase or sale of both a call option and a put option on the same underlying asset.
Long Strangle
Strategy ⎊ The long strangle is a non-directional options strategy executed by simultaneously purchasing an out-of-the-money (OTM) call option and an OTM put option on the same underlying asset with the same expiration date.
Strangle
Definition ⎊ The strangle is a neutral options strategy involving the simultaneous purchase of a call option and a put option on the same underlying asset, with the same strike price but different expiration dates.
Risk Profile
Profile ⎊ A risk profile represents the quantitative assessment of an investment strategy's exposure to various sources of uncertainty, including market, credit, liquidity, and operational risks.