Long Strangle Strategy
Buy an OTM call and OTM put to profit from large moves at lower cost than a straddle.
Unlimited on upside, substantial on downside
Total premium paid
Put strike - total premium AND Call strike + total premium
volatile
📖 What is the Long Strangle?
A long strangle involves buying an out-of-the-money call and out-of-the-money put with the same expiration. Like a straddle, it profits from large moves in either direction, but it costs less because both options are OTM. The tradeoff is needing a larger move to profit.
🔧 How to Set Up
BUY CALL @ OTM (above current price)
Buy OTM call
BUY PUT @ OTM (below current price)
Buy OTM put
💡 Example Trade
Underlying: GOOGL @ $150
Buy 155 call and 145 put for $5 total
Unlimited above $160 or substantial below $140
$500 (total premium × 100)
$140 and $160
📊 Greeks Profile
Near zero initially.
Positive. Benefits from large moves.
Negative. Time decay hurts both legs.
Positive. Rising IV increases value.
❓ Frequently Asked Questions
How wide should I set my strangle strikes?
Balance cost vs probability. Wider strikes are cheaper but need bigger moves. Many traders use strikes around the expected move for the time period.
Pros & Cons
- ✓Lower cost than straddle
- ✓Profits from large moves either direction
- ✓Limited risk
- ✓Can be structured for various risk profiles
- ✗Needs larger move than straddle to profit
- ✗Both options can expire worthless
- ✗Time decay works against you
- ✗IV crush risk
Ideal Conditions
- →Expecting a very large move in either direction
- →IV is low (cheap options)
- →Want cheaper exposure than straddle
- →Major catalyst with uncertain outcome
💡 Pro Tips
- Wider strikes = cheaper but needs bigger move
- Consider asymmetric strangles if you have directional lean
- Close winners early - don't wait for expiration
- Calculate probability of reaching breakevens