Theta Tracker
Browse lessons

Core Lessons

1Options Basics2Option Pricing3Option Chains4Orders & Expiration5Greeks & Volatility

Beginner Strategies

6Covered Calls7Cash-Secured Puts8Vertical Spreads9Protective Puts

Advanced Strategies

10Thetagang Core11The Wheel12Iron Condors13Strangles & Straddles14Calendars & Diagonals15Butterflies16ZEBRAs
Back to All Lessons

Advanced Strategies: Strangles & Straddles

Strangles and straddles sell (or buy) both sides of the market. Short versions are popular range trades that profit when price stays calm. Long versions are volatility bets when you expect a big move.

Before You Trade

These examples and charts are simplified teaching models. Confirm live pricing, liquidity, and assignment risk in your broker before placing real trades.

Basics

Straddle = ATM, strangle = wider range

A short straddle sells an at-the-money call and put. A short strangle sells an out-of-the-money call and put, giving you more room but less premium. Both collect credit and benefit from time decay.

Short straddle vs short strangle payoff at expiration on a $100 stock.

Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.

Range Trades

Wide vs tight ranges = safety vs income

Tight ranges (straddles) pay more but break sooner. Wide ranges (strangles) pay less but survive more price noise. Choose based on how volatile the stock actually trades versus what the market is pricing in.

Practical comparison

If a stock typically moves $3 per week, a strangle with $5 wings gives breathing room. A straddle at the money would be tested quickly, but it pays more credit.

Volatility

These are vega-heavy trades

Because you sell two options, strangles/straddles have big vega exposure. When IV falls after you sell, the position gains quickly. When IV spikes, the position expands against you even if price stays in range.

Option value rises faster with IV for straddles because both legs are at-the-money.

Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.

Greeks

Theta is a friend, gamma is the risk

Short premium positions have positive theta but short gamma. That means you earn daily decay, yet large moves can accelerate losses. Adjustments aim to reduce gamma risk when price trends.

Sample daily Greek moves for a short strangle.

Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.

Risk & Adjustments

Unlimited risk requires a plan

Short strangles and straddles have undefined risk. Traders often define risk by adding wings (creating iron condors), rolling strikes away, or cutting size when one side is threatened.

Adjustment examples

If the call side is tested, you can roll the put side up (to collect more credit) or roll the whole position out in time. If the move is strong, converting to an iron condor caps the worst-case loss.

Who This Is For

Traders familiar with basic spreads who want to learn how selling (or buying) both a call and a put together creates volatility-based trades.

Learning Objectives

  • • Explain the structural difference between a straddle (same strike) and a strangle (different strikes).
  • • Compare the risk/reward of short straddles vs. short strangles.
  • • Understand why these are vega-heavy trades and how IV changes affect profitability.
  • • Describe adjustment strategies when one side is tested.
  • • Recognize that short strangles/straddles have undefined risk and require careful position sizing.

Risk Note

Short strangles and straddles have undefined (unlimited) risk in both directions. A large gap move can result in losses many times the credit collected. Always size these trades conservatively, have clear stop-loss rules, and consider adding wings to convert to an iron condor if risk becomes uncomfortable.

Example Walkthrough

Scenario — Short strangle: XYZ is at $100. You sell the $95 put and the $105 call (45 DTE) for a combined credit of $4.00 ($400 total).

Best case: XYZ stays between $95 and $105

Both options expire worthless. You keep the full credit: +$400.

Worst case: XYZ gaps to $120

The $105 call is $15 ITM. Loss = ($15 − $4) × 100 = −$1,100 (and growing for each dollar above $120). Risk is undefined—losses increase with further movement.

Breakevens: Lower = $95 − $4 = $91. Upper = $105 + $4 = $109. The strangle profits as long as price stays within this range at expiration.

Common Mistakes

Treating undefined risk as no risk

Short strangles can lose multiples of the credit collected in a gap move. Always have a stop-loss plan or consider adding wings.

Selling into rising IV without a plan

Selling when IV is already rising feels like collecting big premium, but continued IV expansion can cause paper losses even if price stays in range.

Over-sizing the position

Because strangles have undefined risk, position size must be conservative. Risk only what you could afford to lose in a worst-case scenario.

Quick Recap

  • • A straddle sells at the same strike (more premium, tighter range); a strangle sells at different strikes (less premium, wider range).
  • • Both are vega-heavy: falling IV helps your position, rising IV hurts it.
  • • Undefined risk requires conservative sizing and predefined stops or the addition of protective wings.

Next lesson

Calendars & Diagonals

Up next

Time spreads that profit from fast front-month decay and slow back-month decay.

Continue

Keep Going

Ready to apply this to your own trades?

Theta Tracker helps you log positions quickly, follow P&L, and review your decisions over time. Start with a free account and keep your process organized from day one.

Create your free account