Straddles Vs Strangles – A Thread
There have been some really interesting discussion points recently based on Euan Sinclair’s assessment of RR in straddles vs strangles. Personally, I’ve always felt far more comfortable trading strangles. (1/n)

Straddles have the highest theta value and benefits more than strangles when there is a vol crush. Over time, straddles should have a net P/L greater than strangles. This, albeit, comes at the cost of a lower PoP and higher risk. (2/n)

Early in the expiry, rate of decay of OTM>ATM options. ATM options are in the middle of the bell curve and bulk of decay happens in the later stages. However, a 20% vol crush in a straddle may result in P/L greater than 100% of a 16 Delta strangle credit. Hence, (3/n)

Strangles are a vol+decay play, straddles are a far superior pure vol play. If one’s thesis is an exaggerated stock reaction, excessive implied volatility and lower Rvol going forward, it makes much more sense to narrow short strikes. You get paid more for the same PoP (4/n)

Straddles also make more sense to deploy in very small priced underlyings, where the straddle break-evens are very close to that of strangles. Might as well collect the higher credit. (5/n)