CMI Strangle Strategy
CMI (Cummins Inc.), in the Industrials sector, (Industrial - Machinery industry), listed on NYSE.
Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power. The company offers diesel and natural gas-powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers new parts and services, as well as remanufactured parts and engines. It also provides power generation systems, high-horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. In addition, the company offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and electronic control modules, sensors, and supporting software, as well as new, replacement, and remanufactured fuel systems. Further, it provides automated transmissions; standby and prime power generators, controls, paralleling systems, and transfer switches, as well as A/C generator/alternator products under the Stamford and AVK brands; and electrified power systems with components and subsystems, including battery, fuel cell, and hydrogen production technologies.
CMI (Cummins Inc.) trades in the Industrials sector, specifically Industrial - Machinery, with a market capitalization of approximately $97.91B, a trailing P/E of 36.71, a beta of 1.27 versus the broader market, a 52-week range of 307.9-718.08, average daily share volume of 861K, a public-listing history dating back to 1947, approximately 70K full-time employees. These structural characteristics shape how CMI stock options price implied volatility around earnings windows, capital events, and macro-driven sector rotations.
A beta of 1.27 places CMI roughly in line with broader market moves, so the strategy payoff and realized volatility track the index-equivalent baseline. The trailing P/E of 36.71 is on the rich side, which tends to correlate with higher earnings-window IV expansion as the market debates whether forward growth supports the multiple. CMI pays a dividend, which adjusts put-call parity and shifts the ex-dividend pricing across the listed chain.
What is a strangle on CMI?
A long strangle buys an OTM call and an OTM put at offset strikes, cheaper than a straddle but requiring a larger underlying move to profit since both wings start out-of-the-money.
Current CMI snapshot
As of May 15, 2026, spot at $696.29, ATM IV 38.10%, IV rank 53.10%, expected move 10.92%. The strangle on CMI below is built from the same end-of-day chain, with strikes snapped to listed contracts and premiums pulled from the bid/ask midpoint at a 34-day expiry.
Why this strangle structure on CMI specifically: CMI IV at 38.10% is mid-range versus its 1-year history, so strategy selection should anchor more to the directional thesis than to the IV regime, with a market-implied 1-standard-deviation move of approximately 10.92% (roughly $76.06 on the underlying). The 34-day window matched to the front-month expiry keeps theta exposure bounded while still capturing the post-snapshot move; longer-dated CMI expiries trade a higher absolute premium for lower per-day decay. Position sizing on CMI should anchor to the underlying notional of $696.29 per share and to the trader's directional view on CMI stock.
CMI strangle setup
The CMI strangle below is built from the end-of-day chain, with each option leg priced at the bid/ask midpoint of its listed strike. With CMI near $696.29, the first option leg uses a $730.00 strike; additional legs (when the strategy has them) anchor to spot-relative offsets. Premiums come from the bid/ask midpoint on the listed CMI chain at a 34-day expiry; the cross-strike IV skew is reflected directly in the per-leg values rather than approximated. Quantity sizing assumes one contract per option leg (or 100 CMI shares for the stock leg in covered calls and collars).
| Action | Type | Strike / Basis | Premium (est) |
|---|---|---|---|
| Buy 1 | Call | $730.00 | $17.90 |
| Buy 1 | Put | $660.00 | $16.95 |
CMI strangle risk and reward
- Net Premium / Debit
- -$3,485.00
- Max Profit (per contract)
- Unbounded
- Max Loss (per contract)
- -$3,485.00
- Breakeven(s)
- $625.15, $764.85
- Risk / Reward Ratio
- Unbounded
Upside max profit is unbounded; downside max profit is bounded at the put strike minus the combined debit (reached at zero). Max loss equals the combined debit times 100 (reached anywhere between the two OTM strikes). Two breakevens at call-strike plus debit and put-strike minus debit.
CMI strangle payoff curve
Modeled P&L at expiration across a range of underlying prices for the strangle on CMI. Each row is one sampled price point from the computed payoff curve; the full curve uses 200 price points internally before being summarized into 10 rows here.
| Underlying Price | % From Spot | P&L at Expiration |
|---|---|---|
| $0.01 | -100.0% | +$62,514.00 |
| $153.96 | -77.9% | +$47,118.75 |
| $307.91 | -55.8% | +$31,723.51 |
| $461.87 | -33.7% | +$16,328.26 |
| $615.82 | -11.6% | +$933.02 |
| $769.77 | +10.6% | +$492.23 |
| $923.72 | +32.7% | +$15,887.48 |
| $1,077.68 | +54.8% | +$31,282.72 |
| $1,231.63 | +76.9% | +$46,677.97 |
| $1,385.58 | +99.0% | +$62,073.22 |
When traders use strangle on CMI
Strangles on CMI are the cheaper cousin of the straddle - traders use them when they want a large directional move but are willing to give up the inner-strike sensitivity in exchange for a lower up-front debit on the CMI chain.
CMI thesis for this strangle
The market-implied 1-standard-deviation range for CMI extends from approximately $620.23 on the downside to $772.35 on the upside. A CMI long strangle is the OTM cousin of the straddle: lower up-front cost but the underlying has to travel further past either OTM strike before the position turns profitable at expiration. Current CMI IV rank near 53.10% is mid-range against its 1-year distribution, so the IV signal is neutral; the strangle thesis on CMI should anchor more to the directional view and the expected-move geometry. As a Industrials name, CMI options can move on sector-level news flow (peer earnings, regulatory updates, industry-specific macro data) in addition to CMI-specific events.
CMI strangle positions are structurally neutral / high-volatility (long premium, OTM); the modeled P&L assumes European-style exercise at expiration and ignores early assignment, transaction costs, dividends paid before expiry on the stock leg (when present), and the bid-ask spread on the listed chain. CMI positions also carry Industrials sector concentration risk; news flow inside the sector (peer earnings, regulatory shifts, supply-chain headlines) can move CMI alongside the broader basket even when CMI-specific fundamentals are unchanged. Always rebuild the position from current CMI chain quotes before placing a trade.
Frequently asked questions
- What is a strangle on CMI?
- A strangle on CMI is the strangle strategy applied to CMI (stock). The strategy is structurally neutral / high-volatility (long premium, OTM): A long strangle buys an OTM call and an OTM put at offset strikes, cheaper than a straddle but requiring a larger underlying move to profit since both wings start out-of-the-money. With CMI stock trading near $696.29, the strikes shown on this page are snapped to the nearest listed CMI chain strike and the premiums come straight from the end-of-day bid/ask midpoint.
- How are CMI strangle max profit and max loss calculated?
- Upside max profit is unbounded; downside max profit is bounded at the put strike minus the combined debit (reached at zero). Max loss equals the combined debit times 100 (reached anywhere between the two OTM strikes). Two breakevens at call-strike plus debit and put-strike minus debit. For the CMI strangle priced from the end-of-day chain at a 30-day expiry (ATM IV 38.10%), the computed maximum profit is unbounded per contract and the computed maximum loss is -$3,485.00 per contract. Live intraday quotes will differ as the chain moves through the trading session.
- What is the breakeven for a CMI strangle?
- The breakeven for the CMI strangle priced on this page is roughly $625.15 and $764.85 at expiration, derived from end-of-day chain premiums. Breakeven is the underlying price at which the strategy's P&L crosses zero ignoring transaction costs and assignment risk. The current CMI market-implied 1-standard-deviation expected move is approximately 10.92%; if the move sits well outside the breakeven distance, the structure's risk-reward becomes correspondingly tighter.
- When should you consider a strangle on CMI?
- Strangles on CMI are the cheaper cousin of the straddle - traders use them when they want a large directional move but are willing to give up the inner-strike sensitivity in exchange for a lower up-front debit on the CMI chain.
- How does current CMI implied volatility affect this strangle?
- CMI ATM IV is at 38.10% with IV rank near 53.10%, which is mid-range against its 1-year history. Strategy selection depends more on directional thesis and expected move than on a strong IV signal.