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Naming and Interpreting a Long Strangle Plus Short Strangle Position

Article Quant Q&A · Author: Saverio
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Summary

The position buys two deep out-of-the-money calls and puts, while selling one nearer out-of-the-money call and put. One response describes it as a ratioed strangle switch; another views it as an iron condor combined with a long strangle. These are descriptive labels rather than a universally established name.

The answers characterize the position as benefiting from higher implied volatility, with exposure to price moves in either direction and losses possible around moderate outcomes. The second answer cautions that the extra long option legs mean the position does not benefit from falling implied volatility. The document gives no payoff chart, strikes, expirations, or market data, so it does not quantify the break-even points, time decay, or practical trading costs. Its main lesson is to assess the combined position's payoff and volatility and decay exposures rather than rely on a name.

Key ideas

  • The position combines long deep out-of-the-money calls and puts with short nearer out-of-the-money calls and puts.
  • One response calls the structure a ratioed strangle switch, while another describes it as an iron condor combined with a long strangle.
  • The answers associate the position with gains from higher implied volatility and exposure to large moves in either direction.
  • The extra long legs are said to prevent the position from benefiting from falling implied volatility.
  • Strike selection, expiration, time decay, and transaction costs are not quantified.

Tags

OptionsVolatilityDerivatives pricing
Full text
# What is this option strategy called?


# What is this option strategy called?












I have been playing with option strategies in order to understand the advantages/drawbacks of all of them.

Then I realized this type of strategy is not so advertised in the web and cannot find any "academic" name for it.

The strategy consists in: a) buy 2 deep OTM calls b) buy 2 deep OTM puts c) sell 1 OTM call d) sell 1 OTM put

It looks like a reverse Batman strategy with no capped profit (you gain from low and high volatility while losing from medium volatility).

Is this replicable in real world? Do we have a name for it?

## Answer by user42108 (score 3)

https://quant.stackexchange.com/a/61589

a) buy 2 deep OTM calls b) buy 2 deep OTM puts c) sell 1 OTM call d) sell 1 OTM put

This is just a ratioed strangle switch. No idea if there's a name for it but it's not a new idea and I've seen it pitched.

## Answer by Bob Baerker (score 1)

https://quant.stackexchange.com/a/61615

It's an iron condor combined with a long OTM strangle.

It benefits from higher IV. It does not benefit from lower IV because there are more long legs than short.

Oftentimes, people just make up names for combining two strategies. AFAIC, what's important is to understand the potential P&L of the strategy as well as the overall effect of time decay and implied volatility.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.