Long Strangle
A long strangle buys a put below the market and a call above it, on the same underlying and expiry. The two premiums plus costs are the most it can lose, and all of that is lost wherever the underlying finishes between the two strikes. Against a straddle it gives up the middle of the range: nothing is earned until the price has travelled past a strike and then past the premium. In return it costs far less. It is built for a large move in either direction within a set time. On this page's FTSE 100 example, a 10,400 put and an 11,100 call to 16 October, that is £1,613.40 at risk, with breakevens of 10,239 and 11,261.
The example opens on Tuesday 1 September 2026, the library's 45-day FTSE 100 date, with the index at its 10,750 model level; the dates are fixed and in the past, and the figures are modelled, not quoted (modelled example: inputs and method). It assumes the long straddle has been read: that page explains implied moves and the fall in volatility after an event on a single share; this one is about strike distance, realised volatility and contract size on an index.
What 14% asks the index to do in 45 days
At 14% implied volatility, the model's one-standard-deviation range for 16 October runs from 10,234 to 11,292, 4.80% below and 5.04% above 10,750. The strangle's breakevens sit at 10,239 and 11,261, 4.75% either way: just inside that range. So the position needs the index to finish roughly a full standard deviation away, in one direction or the other, and on the skew surface the model probability (risk-neutral, lognormal) of that is 32.6%: 15.7% below 10,239 and 16.9% above 11,261. The probability that at least one option finishes in the money is higher, 50.5%, but an option only just in the money returns less than its share of the debit.
The at-the-money straddle on the same day is worth £4,198.93 at model value (£4,205.00 filled a tick up, as in the table below); this strangle's model value is 38.2% of that. The saving is paid for in distance: the straddle's breakevens are 3.91% away, the strangle's 4.75%.
Where 14% sits: it is close to the average of the 30-day FTSE 100 IVI in 2025 (13.55) and below its average in the year to June 2026 (17.06), on FTSE Russell's factsheet. A UK reader can follow the index-level reading on that index and each option's IV on a broker's chain; IV rank is then computed from a year of such readings (volatility indices and where to find IV; IV rank and percentile). Had the whole surface stood 4 points higher, the same two options would have cost £2,614.08; 2 points lower, £1,141.21. The Bank of England's decision on Thursday 17 September, when it held Bank Rate at 3.75%, fell inside the window; this example prices no premium for it, and an event priced into one expiry would show as that expiry's IV standing above its neighbours (term structure; event premium).
A 10,400 put and an 11,100 call on the 16 October series
The contract. The ESX option is worth £10 a point, trades from 08:00 to 16:50, stops trading shortly after 10:15 on the expiry Friday and is settled in cash against the Exchange Delivery Settlement Price, set in an intraday auction that morning (FTSE 100 contracts; how the EDSP is set). There is no delivery and no early exercise, so an in-the-money leg simply pays its value in cash. ICE sets strike intervals of 25 to 200 points by distance and time to expiry; a live chain shows which strikes are listed.
£1,613.40 at risk across a 700-point floor
FTSE 100 10,400/11,100 strangle, profit or loss per contract before costs, at expiry and on two earlier dates. The expiry line is flat for the whole 700 points between the strikes; the 21-day line is already more than half-way down to it at 10,750.
Cash settlement needs no closing trade, so the only commissions at expiry are the £3.40 paid to open. A position closed on the screen instead pays £1.70 for the leg with value, which puts the breakevens after commissions at 10,238.49 and 11,261.51.
How these numbers are calculated
Debit = put fill + call fill = 91.00 + 70.00 = 161.00 points, or £1,610.00 at £10 a point; maximum loss = debit + two opening commissions = £1,613.40. Breakevens at expiry: 10,400 − debit and 11,100 + debit. Each option is priced by Black-Scholes-Merton with the 3.05% yield and its own IV from the surface (15.32% for the put, 12.72% for the call). Probabilities are taken from the surface, from the slope of option prices across strikes, not from one flat volatility. The one-standard-deviation range is 10,750 × e±0.14√(45/365), and 0.14√(45/365) = 4.92%. In the realised-volatility table each row prices both options at one flat volatility, which is the model's discounted expectation of their payoff if that volatility is what follows. Delta is in pounds per index point; gamma is the change in that delta for a 10-point move; theta is pounds a calendar day; vega pounds a volatility point.
Five strangles on one surface: how far apart to put the strikes
The distance between the strikes is the decision that shapes this position. Five versions priced on the same surface on 1 September, from the at-the-money straddle out to 10-delta wings:
Each step outwards cuts the debit and pushes the breakevens out almost as far as the strikes moved. From the worked example to the 10,200/11,250 pair, the call strike moves 150 points and the upper breakeven 80: the pair is 43.5% cheaper, and a 5% move by 16 October (10,212.5 or 11,287.5) that returns +£265.00 on the example leaves the wider pair with nothing (−£910.00 after a fall, −£535.00 after a rise). The model probability of finishing beyond a breakeven falls from 42.1% for the straddle to 32.6% for the example and 15.3% for the 10-delta pair. The cheaper strangle is a different bet, on a rarer move, not the same bet at a lower price. On the model's own prices every row is fair before costs; what changes is how large the move must be, and how often the model expects one.
Realised against implied: what the next 45 days had to deliver
A strangle is bought at an implied volatility and paid, at expiry, by the volatility that follows. Pricing both options at a single flat volatility gives the model's discounted expectation of their payoff if that is how volatile the index turns out to be. The volatility at which that value equals the model price is the strangle's own implied volatility: 14.00% here, the same as the at-the-money level, because the put's extra IV and the call's lower IV nearly cancel. Including the ticks and the opening commissions, the volatility that follows has to come in at about 14.04% just to return the cost.
Model value of the two options on 1 September (their discounted expected payoff), less the £1,613.40 paid, if the index's volatility over the 45 days turns out to be the level on the horizontal axis. Markers: the FTSE 100's average 30-day realised volatility in 2025 and since 2000 (FTSE Russell), and the 14% paid.
Each point of realised volatility is worth about £240.20 here, the strangle's vega. At the 2025 average of 10.71%, a daily move of about 73 points against the 95 that 14% implies, the model values the pair at £862.35, −£751.06 after its cost. At the long-run average of 16.08% the figure is +£505.26. FTSE Russell's factsheet shows the average 30-day implied level above the average 30-day realised level in every period it covers, 18.96 against 16.08 since 2000 and 13.55 against 10.71 in 2025 (implied against realised); an average hides the stretches when realised volatility jumped, which are the only ones that pay a strangle. None of this is a forecast. In the event, the index closed between about 10,600 and 10,900 on every trading day from 3 August to 25 September, never within 350 points of either breakeven: the quiet ending below is the one closest to what happened.
Why the 10,400 put costs more than the 11,100 call
The two strikes are almost the same distance from 10,750, yet the put costs 90.78 points and the call 69.62. At a flat 14% the put would be worth 75.09 points and the call 85.27: the surface adds £156.98 to the put and takes £156.47 off the call, +£0.51 net. The dividend is not the reason here. At a 3.05% yield against a 3.75% rate, the model's 16 October forward is 10,759, a few points above the index, which on its own would make the call slightly dearer. The put's premium is skew: index puts are priced at higher IVs because they are bought as protection and because volatility has tended to rise when the FTSE falls (skew). For the strangle holder it means the downside leg is dearer and the upside leg cheaper than a flat model says, and a fall tends to bring a rise in IV that helps the put, which the fall ending below models with a 4-point shift.
The worked plan: four endings for a September strangle
This worked plan takes profit if the strangle is worth one and a half times its debit, 241.50 points (£805.00 ahead before costs), and otherwise closes both legs with 21 days left, on Friday 25 September. It sets no stop. Sales are filled on the tick below the model value, and each ending then shows what holding on would have given. These are model scenarios; the note above says what the index actually did.
A fall to 10,150 by Friday 18 September, −5.6%, with every IV 4 points higher
Selling the put alone and keeping the call is called legging out. It keeps a small upside option for almost nothing, since the call is worth only 5.00 points, and it splits the position into two disposals on different dates: the put's +£2,701.60 gain on 18 September, the call's result when it is sold or lapses. The tax section shows why the dates matter when 5 April falls between them.
A rise to 11,100 by Friday 25 September, +3.3%, with every IV 2 points lower
The index rose all the way to the call's strike and the position still lost. Reaching the strike is not enough: the call has to travel past it by the whole debit, and a rise that comes with falling IV marks both options down on the way; on the FTSE the two have tended to go together (skew section above).
Nothing happens: 10,750 on Friday 25 September
Held to settlement: an EDSP of 11,400 on Friday 16 October
Settlement needs no instruction and no closing trade: ICE pays the in-the-money leg's value in cash the next business day. What it removes is choice about the price, since the EDSP is set in one auction on the Friday morning (the expiry day in UK time).
Greeks: theta peaks before the last fortnight
A strangle's time decay behaves differently from a straddle's. With the index at 10,750, theta is −£37.27 a day at entry, grows to −£42.65 with 21 days left and shrinks to −£29.31 with 7 left, because by then both options are far out of the money and have little left to lose; vega drains faster, from £240.20 to £127.57 and then £28.82. After an instant fall of one standard deviation the position behaves like −£5.61 a point, and with the IV rise that often comes with a fall it is worth +£2,265.12 rather than +£1,530.77: the skew and the volatility dynamics work for the put side. Gamma is small in pounds per 10 points, +£0.121 at entry, and is largest near a strike (position Greeks and units).
Adjusting mid-life has its own costs. Rolling to a later expiry is two trades, with a second debit at risk and the first loss already booked; moving the untested option nearer the index raises the debit and moves a breakeven inwards. The mechanics are on the rolling page, and re-buying an option of the same series within 30 days of selling it is matched with that sale (30-day rule).
Capping the wings: the reverse iron condor
Selling a 10,100 put and an 11,400 call against the strangle turns it into a long iron condor, sometimes called a reverse iron condor: the same breakeven idea with the profit capped 300 points beyond each strike.
The condor costs less, breaks even closer in and loses less to time and to a fall in IV, and gives up everything past the short strikes. It is a Level 2 structure at Interactive Brokers, listed there as a long iron condor, like the strangle itself; on a cash-settled index its short wings cannot be assigned early.
A tenth of the size: Mini FTSE 100 daily options
One ESX strangle puts £1,613.40 at risk. The library's sizing convention caps speculative long premium at 1% of an account per position, which that would fit only in an account of £161,340 (sizing framework; a convention, not a rule). ICE also lists Mini FTSE 100 Index Daily Options (8LX) at £1 a point: European, cash-settled on the closing auction, in-the-money options exercised automatically, with the front five daily expiries plus a third-Friday expiry. The catch is time. On 1 September the longest 8LX expiry is Friday 18 September, 17 days away, so the 45-day position above has no mini equivalent; a tenth of it would have been £161.00 in premium if one existed.
That fits the 1% convention on an account of £8,640, but commission takes 4.1% of the debit at the £1.70 placeholder rate, and a 17-day strangle is a shorter, more concentrated bet than a 45-day one. The 8LX is listed on ICE; whether a given broker offers it, and at what commission, could not be confirmed (checked 26 September 2026), so the first check is that the broker offers it and quotes a two-way price.
UK tax: cash settlement, a lapse, and a leg sold early
Nothing is taxed when the strangle is bought. Each option is its own asset. Sold, it is a disposal against its premium and commissions. Left to lapse, it gives a loss of its cost in the tax year it lapses (TCGA 1992 s144(4); CG55415). Settled in cash at expiry, it is a disposal of the right to the payment, with the cash as proceeds and the premium as cost (s144A(3); CG12322). A cash-settled index option brings no SDRT (bought options). Figures assume the £3,000 annual exempt amount is used by other gains; every date here falls in 2026/27. The trap on this page is the leg sold early. Move the fall ending to March 2027: the put's +£2,701.60 is a 2026/27 gain, tax of up to £648.38, while a call left to lapse in April is a 2027/28 loss that cannot be set against it, only carried forward (across 5 April).
Options cannot be held in an ISA (wrappers); the boxes are on the SA108 page.
Costs, access and the account
A spread bet or CFD on the index can give a similar payoff with different tax: gains on a spread bet are outside CGT and its losses are not allowable (listed options, spread bets and CFDs).