The FX Option Strangle Strategy is a non-directional options setup designed to profit from large moves in the exchange rate of a currency pair—regardless of direction. It involves buying both a call and a put option, each with the same expiry date but different strike prices, placed out-of-the-money (OTM).

This strategy is ideal for traders anticipating high volatility, such as after key economic data releases, central bank meetings, or geopolitical events. It is widely used by institutional FX desks, macro traders, and volatility specialists.

What Is an FX Strangle?

A strangle involves:

• Buying an OTM call option
• Buying an OTM put option
• Both options share the same expiry but have different strikes

Unlike a straddle (where both options are at-the-money), a strangle is cheaper but requires a larger price move to become profitable.

Strategy Objective

• Profit from a big move in either direction
• Trade volatility, not direction
• Control costs compared to straddle
• Ideal around event risk and macro uncertainty

Example: EUR/USD Long Strangle

• Spot: 1.0800
• Buy 1-month 1.1000 Call
• Buy 1-month 1.0600 Put
• Total premium: e.g. 80 pips

Profit scenarios:

• EUR/USD rallies above 1.1080
• EUR/USD drops below 1.0520
• Either side must move beyond premium cost to generate net profit

Breakeven Points:

• Upper: Call strike + premium = 1.1000 + 0.0080 = 1.1080
• Lower: Put strike − premium = 1.0600 − 0.0080 = 1.0520

When to Use the FX Strangle

• Before high-impact events: NFP, FOMC, ECB, CPI, elections
• During consolidation expecting a breakout
• To express a volatility view with no directional bias
• When implied volatility is lower than expected future volatility

Hedging Application

Corporates or funds use strangles to hedge exposure around extreme outcomes:

• E.g., An exporter expecting potential large EUR/USD moves due to interest rate shifts
• A strangle provides coverage on both sides while allowing upside participation

Short Strangle Variant

The short strangle involves:

• Selling an OTM call and an OTM put

Objective: Profit if the currency remains within a range
Risk: Unlimited if price breaks outside the range
Use case: In low-volatility environments, traders sell strangles to collect premium

Note: Only suitable for advanced traders with proper risk controls and margin capacity

Comparison: Strangle vs Straddle

Feature	Strangle	Straddle
Cost	Lower	Higher
Breakeven	Requires bigger move	Smaller move needed
Strike Prices	OTM options	ATM options
Volatility View	High expected volatility	High expected volatility
Direction	Non-directional	Non-directional

Advantages of the FX Strangle

• Profits from large moves in either direction
• Lower cost than a straddle
• Defined risk: limited to total premium paid
• Highly customisable by strike distance and expiry
• Ideal for event-driven trades

Risks and Drawbacks

• Requires significant price move to be profitable
• Losses occur if market stays within strikes
• If IV drops post-entry, premiums can decay quickly
• Not suitable in quiet or range-bound markets

Key Trade Management Tips

• Close early if one leg becomes deeply profitable
• Monitor IV: rising IV after entry helps, falling IV hurts
• Consider converting to straddle or ratio spreads if view evolves
• Use delta-hedging if trade moves significantly in one direction

Conclusion

The FX Option Strangle Strategy is an excellent tool for traders looking to capitalise on volatility without predicting direction. Whether used before macroeconomic events, political risks, or technical breakouts, strangles offer a defined-risk, high-reward profile that suits modern FX markets.

To master strangles and other volatility-based currency strategies, including structuring, timing, and managing them like institutional pros, enrol in our expert-led Trading Courses and trade the FX options market with greater precision and confidence.