Long Strangle Strategy
Buy an OTM call and put. Cheaper than straddle. Needs bigger move to profit.
What is a Long Strangle?
A Long Strangle involves buying an OTM call and OTM put (different strikes, same expiration). Cheaper than a straddle because strikes are OTM. Profits from large directional moves. Needs bigger move than straddle to break even.
When to Use a Long Strangle
Similar to straddle: before big events. Best in low IV when you expect a big move but want cheaper entry. Common for earnings plays when IV is already elevated.
Key Formulas
- Max Profit
- Unlimited (call side)
- Max Loss
- Total premium paid × 100
- Breakeven
- Call strike + premium (upside) / Put strike - premium (downside)
Example Trade
Buy AAPL $205 Call for $2, $195 Put for $2. Total cost $400. Profit if AAPL moves outside $191-$209.
Common Mistakes to Avoid
- Strikes too wide (rarely profitable)
- Buying in high IV (expensive, hard to profit)
- Not exiting one side when one profits
- Holding to expiration with no movement
Related Strategies
Frequently Asked Questions
What is a Long Strangle?
A Long Strangle involves buying an OTM call and OTM put (different strikes, same expiration). Cheaper than a straddle because strikes are OTM. Profits from large directional moves. Needs bigger move than straddle to break even.
When should I use a Long Strangle?
Similar to straddle: before big events. Best in low IV when you expect a big move but want cheaper entry. Common for earnings plays when IV is already elevated.
What is the maximum profit and loss for a Long Strangle?
Max profit: Unlimited (call side). Max loss: Total premium paid × 100.
What is the breakeven price for a Long Strangle?
Breakeven: Call strike + premium (upside) / Put strike - premium (downside). Example trade: Buy AAPL $205 Call for $2, $195 Put for $2. Total cost $400. Profit if AAPL moves outside $191-$209.
What are common mistakes when trading a Long Strangle?
Common mistakes include: Strikes too wide (rarely profitable); Buying in high IV (expensive, hard to profit); Not exiting one side when one profits; Holding to expiration with no movement.
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