What does a strangle options strategy involve?

The strangle options strategy involves buying a call option and a put option with the same expiration date but different strike prices. This approach is designed to profit from significant movements in the underlying asset's price, regardless of the direction of that movement. By holding both types of options, an investor can capitalize on volatility; if the asset price moves substantially in either direction, one of the options is likely to become profitable. The distinct strike prices provide the potential for greater profit as the price of the underlying asset shifts.

Other choices do not align with the definition of a strangle. Selling options at market price can expose the investor to substantial risk, as it involves a different approach called a straddle or naked option selling. Buying only put options limits the ability to benefit from price increases, and only implementing a risk-free arbitrage strategy does not characterize a strangle, as arbitrage strategies seek to exploit price discrepancies rather than betting on volatility.