Introduction

For every trader, while the market remains unpredictable, options strategies such as a straddle or strangle provide ways to profit off this uncertainty without predicting which way the market will be leaning. Both strategies are betting on significant price movement but differ in each total cost, risk and how they execute their trades. This article will compare a straddle to a strangle, how relevant they are for this day and age, and provide guidance on selecting the better option for your trading plan.

Let's Start with Understanding a Straddle

A straddle consists of buying both a call option and put option with same strike price, of the same expiration date and usually will be at-the-money (ATM). This strategy appreciates when you are expecting a large price swing and don't know if the stock or index will rise or fall (and hoping it will be one of them). For example, if the Nifty is at 24,000, you might buy a call with a strike of 24,000 and a put with a strike of 24,000, and you will pay a premium of ₹250 for each option, therefore ₹500 in total per lot. If the Nifty goes to 25,000 your call will be worth more than you paid and your put will be losing value, but you will profit if the Nifty goes above 24,500 or below 23,500 you will need to consider breakeven at the end of the trade.

Straddles are useful for occasions where you might have high uncertainty with large impacts. Union Budgets, RBI rate changes, or Q3 2025 earnings releases are just some examples of events that could kick up volatility. Non-OTM (Out-Of-The-Money) ATM(At-The-Money) options come with high premiums, and you need to have a big price move to break out and break even. Be aware time decay (theta) will erode the value of your straddle (or strangle) as expiration approaches. Timing really matters when using a straddle or strangle.

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Understanding Strangles

A Strangle is like a Straddle with the same call and put expiration dates but they must have different strike prices, normally OTM.  This is why Strangles are normally cheaper than Straddles because you will normally select an OTM strike.  For example, if the Nifty spot is 24000 you could buy a 24,400 call and a 23,600 put each for ₹120 with a total premium of ₹240 per lot. To profit, the Nifty must move beyond 24,640 or below 23,360, a wider range than a straddle requires.

Strangles suit scenarios with potential but less certain volatility, such as global policy shifts (e.g., US trade policies under Trump) or corporate restructuring news. A lower cost will lessen your risk, but you may need a bigger price movement for a profit. When you buy options OTM in the Indian options market, not only can you lose in the form of premium payment, but you may also face liquidity risk as OTM options could have less liquidity than ATM options, having wider bid-ask spreads.

Cost vs. Risk

• Cost: Straddles are more expensive as both legs use ATM options which are a higher premium compared to OTM options you use with strangles. A straddle will cost around ₹500-₹600 per lot, whereas a strangle is ₹200-₹300 per lot, which may better suit some traders who want better fees.

• Breakeven: Straddles have a tighter breakeven making a smaller move for profits or returns. Strangles expose the trader to larger price movements, increasing a higher chance to lose their premium payment.

• Risk: Both strategies limit your loss to the premium paid, but straddles expose your cash up front. When using strangles, since they cost less, the cost of losing the trade is visually less. OTM options tend to expire worthless when there is little price movement.

Knowing when to use a straddle or strangle

• Straddle: Straddles are usually a better option when your conviction about the price movement is high considering the implied volatility is inevitably going to increase. This could be when the blue-chip companies report on their earnings or the Budget 2025 changes because of the new government. Straddles may be better for traders willing to spend more on their trades to reduce the probability of a gain but are increased by the probability of smaller price movements with more frequency from price action.

• Strangle: Use strangles when you expect there could be some volatility but don’t want to pay expensive premiums, such as with looming global economic announcements or sometimes sector-specific news (for example, telecom reforms). They are a good tool for a trader who has a moderate risk profile and can be patient for larger price swings.

Conclusion

The market volatility in India in 2025 has caused significant selling from FIIs, and depreciation of the rupee (with 88 or 89 not being out of the question against the USD) are simultaneous factors. The volatility makes straddles and strangles timely tools. Straddles have higher probability for specific events such as changes in the RBI policy, while strangles are better for uncertainty such as US policy impacts on India.

Traders in India should take advantage of tools from the brokers, watch for the market triggers. Talk to a SEBI-registered advisor or notified body and assess how these strategies can be used according to the risk profile to capture the opportunity that will come with volatility.

Related Blogs - Risks of using Short Straddle and Short Strangle | Strategies for the Straddle Options | Strategies for the Straddle Options