A strangle strategy in options trading is where an investor buys an out-of-the-money call option and an out-of-the-money put option with the same expiration date but different strike prices. The call option strike price is higher than the underlying asset’s current price, while the put option strike price is lower.
This strategy is used when the investor anticipates a significant price movement in the underlying asset but is unsure of the direction. If the asset’s price swings drastically in either direction, one of the options will become in the money and could potentially offset the cost of the other option and produce a profit. However, if the price doesn’t move much, both options could expire worthless, and the investor would lose the premium paid.