LONG STRANGLE
Overview
Buy an OTM call and OTM put at different strikes in the same expiration. Cheaper than a straddle since both options are out-of-the-money, but the stock needs an even larger move to cross either breakeven and generate profit.
What it does
You're buying directional insurance in both directions but choosing OTM strikes to reduce cost. Cheaper than a straddle — but the stock must make an even bigger move to reach breakeven. The call profits from a large rally; the put profits from a large decline. The middle zone (between the two strikes) is the dead zone where both options expire worthless and you lose everything paid.
Structure
buy 1 OTM call + buy 1 OTM put
Setup
- 1.Buy 1 OTM Call (above current price).
- 2.Buy 1 OTM Put (below current price).
- 3.Same expiration, different strikes.
Max profit
Theoretically unlimited on the upside; substantial on the downside down to zero.
Max loss
Total Premium Paid for both options. Occurs if the stock closes between the two strikes at expiration.
Breakeven
Upper: Call Strike + Total Premium. Lower: Put Strike − Total Premium.
When to use
When you expect a major move and want a cheaper entry than a straddle. Good for high-impact binary events with uncertain direction.
When to avoid
When implied volatility is already elevated or you expect the stock to stay range-bound.
Example trade
Stock: AAPL at $150 (earnings in 2 days) Buy 1 AAPL $155 Call at $2.50 Buy 1 AAPL $145 Put at $2.20 Total Debit: $4.70 ($470) Expiration: 7 days Breakeven: $140.30 and $159.70 Max Loss: $470 (if AAPL stays between $145 and $155) Max Profit: Unlimited on upside; substantial on downside If AAPL gaps up to $168: Call value = $13; P&L = ($13 - $4.70) × 100 = $830 If AAPL stays at $151: Both expire worthless, loss = $470
Common mistakes
- ×Forgetting that breakevens are further OTM than on a straddle — the stock needs to make a larger move.
- ×Entering in high-IV environments — cheap-looking options can still be expensive relative to expected moves.
- ×Using expirations too close without a known catalyst — both options decay without a major move.
- ×Not closing partial wins — if one leg surges and the other is worthless, consider closing the winner.
- ×Choosing strikes too far OTM just to reduce cost — breakevens become nearly impossible to reach.
FAQ
What is the difference between a long strangle and a long straddle?
A straddle buys both options at the same ATM strike (more expensive, smaller required move). A strangle buys both options OTM (cheaper, but requires a larger move to profit).
How do I choose the strangle strikes?
A common approach is to choose strikes at the expected move implied by the market (about 1 standard deviation each way). Some traders use just OTM strikes 2–5% from the current price.