Derivatives · Core
Strangle
A strangle is an OTM call plus an OTM put — cheaper than a straddle, needs a bigger move, same vol-vs-realized logic.
Definition
Long OTM put + long OTM call, different strikes. Less debit, wider breakevens than the ATM straddle. Short strangles are the classic short-vol carry with tail risk in both wings.
Why it matters
Yield-enhancing short-vol programs often sell strangles. The return looks like a bond until a wing prints.
Case
A 25-delta short strangle on an index through a quiet quarter. Then a gap through one wing. Three months of premium, one day of gamma.
How to read it
Deltas, not just ‘OTM.’ Short wings need a jump model, not a Sharpe on the last 36 quiet months.
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