Firstly, I assume you mean a bought strangle strategy, the most common type.
It involves buying the same number of out of the money call and put options on the same underlying stock, with the same expiry date.
(This differs from the similar 'straddle' strategy where at the money call and put options are bought).
Let's say Apple(AAPL) is $480 in Oct. You could buy a Dec $490 call and a Dec $470 put to form a strangle.
Why would you do this? Because you expect the stock to move substantially, but are not sure about which way the stock will move.
Here's the profit and loss for this trade:
Notice that profit is made only if, in this case, AAPL is below approx $467 and above $493 at expiry.
Notice also that all our money is lost if the stock is between $470 and $490. Indeed the strategy is theta positive: if the stock doesn't move it steadily loses money over time.
The trade is therefore pretty risky: we need to be reasonably certain that such an strong move would happen.
Reasons for strong move
So what would some of the reasons be for such a move?
Well, the most obvious would be earnings. The announcement of a company's earnings are usually (but not always) a cause of a significant move straight afterwards. Down if the results are poor; up if good.
The other similar reasons would be before a product launch or key industry announcement.
So all we have to do is buy a strangle before earnings or price impacting event and make lots of money?
Well, if only trading were that simple. The factor we haven't considered is Implied Volatility.
IV is the market estimation of the future volatility of a stock. And so if the market knows a big event is coming up it will tend to price this into IV.
As a strangle has positive vega – ie it increases with value with increased volatility – this would make the strangle expensive coming into the event.
What's more, IV would fall straight after the event – there is now less future risk as the event has passed – and hence the strangle may be lower in value even with a large move.
A better approach
Choose a time where IV is low in an event heavy stock, buy a strangle (or straddle which works in the same way) and wait for IV to rise and/or the stock to move.
A good example of a stock to use is those in volatile industries such as the tech industry; eg Apple. Here's an example of where we used the above approach to capitalise on the iphone5 launch:
Buy Apple’s Low Volatility Before iPhone 5 Launch
The strangle, and its sister the straddle, are excellent vehicles to use when the market is yet to price in expected volatility. It can, however, be risky and should only be used with strong risk management approaches.