The strangle is an option trading strategy that profits when the stock goes up or down on a strong volatile move. You don’t really care which way the stock moves as long as it moves violently in one direction or the other. The beauty of this trade is that you usually only have to hold it for a few days for it to work.

Find a stock that has an upcoming event that you think will significantly move the stock. Usually the best time to use them is during earnings seasons when reports can make a stock move violently. Also if you know that there is pending news such as a lawsuit or the FDA approval of a new drug for a pharmaceutical company.

Buy an out of the money call on the underlying stock that has 6-8 weeks left until expiration.

Buy an out of the money put on the underlying stock that has 6-8 weeks left until expiration.

Hold the trade until after the announcement. If there is a strong move on the stock you can profit handsomely. Don’t hold the trade for more than a few days after the announcement as options begin to lose their time value the fastest 4-5 weeks before expiration.

Make sure to check that the options that are purchasing are not extremely overpriced because if they are it may be difficult to make money on the trade unless the stock makes a huge move. Also if the stock doesn’t move options can suffer from what’s called a volatility crush when the option price drops precipitously after an important announcement due to a drop in volatility

For example if Dell is trading at $25.00 You would Buy the $24 call and $26 put to create a strangle.