uTrade Algos

What are the differences between straddle and strangle?

The differences between straddle and strangle can be understood with the help of the following table:

Strike PricesDifferent strike prices for call and put options.Same strike price for call and put options.
Upfront CostGenerally lower due to wider strike price difference.Generally higher due to closer strike price.
Profit PotentialRequires larger price movement for profitability.Requires smaller price movement for profitability.
Loss PotentialLimited to the total premium paid.Limited to the total premium paid.
Market ExpectationsExpects high volatility, uncertain about direction.Expects high volatility, significant price movement anticipated.
Use CaseUncertain about the direction of price movement.Expects significant price movement, uncertain about direction.
Risk ToleranceTolerates higher risk for potentially larger gains.Tolerates somewhat lower risk for potentially smaller gains.
Maximum ProfitLower than straddle due to wider strike difference.Higher than strangle due to closer strike.
Maximum LossLimited to the total premium paid.Limited to the total premium paid.