A straddle consists of at-the-money puts and calls that expire on the same date. Strangles consist of out-of-the-money puts and calls that expire on the same date.
Straddles are lower-risk plays than strangles are. You know the stock is going to change price, and if it changes at all one of your options will go in-the-money and can be exercised. (If you've got a stock that really swings back and forth, and you're watching the straddle carefully, it's possible to cash in on both options by exercising them as they go in-the-money.) With a strangle, there's a gap between the two options where both of them are out-of-the-money and it's possible for both options to expire worthless.
The advantage of straddles: the near certainty that one of the two options will go in-the-money.
The advantage of strangles: out-of-the-money options are A LOT cheaper than at-the-money ones. An at-the-money put will run you between 8 and 10 percent of the stock's value--if you're buying an ATM put on Apple, which is over $300 per share right now, you'll pay over $30 per share in premium.
Chat with our AI personalities
a straddle is just you sitting on the ground with your legs apart. your legs do not go all the way out to your sides. a middle split is your legs going completely opposite of each other.