Long Strangle
Buy an out-of-the-money put and an out-of-the-money call. Cheaper than a straddle but needs a bigger move.
Payoff at expiration
When traders use it
Expect a very large move, direction unknown.
Formulas (per share; ×100 per contract)
| Max profit | Unlimited (upside); Kput − total premium (downside) |
| Max loss | Total premium |
| Breakeven | Kcall + premium and Kput − premium |
Key risks
Needs a large move; time decay and IV crush.
How it works
Buy an OTM put and an OTM call, same expiration. Cheaper than a straddle; profits if the stock moves beyond either breakeven.
Worked example HYPOTHETICAL
Hypothetical example only — not real prices or a recommendation. Stock at $100. Buy $95 put ($2.00) and $105 call ($2.00). Total $4.00 ($400).
| Stock price at expiration | P/L (1 contract, excl. fees) |
|---|---|
| $85 | +$600 |
| $91 | $0 |
| $100 | −$400 |
| $109 | $0 |
| $115 | +$600 |
Market outlook: when to use it
Use when: Expect a very large move, direction unknown, at lower cost than a straddle.
Avoid when: High-IV situations or quiet markets.
The Greeks, in plain words
| Delta | Near zero at entry. |
| Theta | Negative. |
| Vega | Positive. |
| Gamma | Positive. |
Choosing strikes and expiration
Equal distance OTM (or similar deltas, e.g., 0.25–0.30 each). Enough time past the catalyst.
Managing the trade
Take profits on the move; cut losses as theta grows. Not subject to assignment (long options).
Common mistakes
- Strikes too far OTM so the needed move is unrealistic.
- Holding into the final weeks.
FAQ
Breakevens?
$91 and $109.
Max loss?
$400, if the stock is between $95 and $105 at expiration.
Explained simply
When would someone use this?
When you expect a very large move but do not know which direction.
The setup, in plain words
Buy a put below the current price and a call above it, same expiration.
Max profit, max loss and breakeven
- Max profit
- Unlimited on the upside; large on the downside.
- Max loss
- The total premium paid, if the stock ends between the two strikes.
- Breakeven
- Two breakevens: put strike − total premium, and call strike + total premium.
A simple numeric example (hypothetical)
Stock at $100. Buy the $95 put for $2 and the $105 call for $2: total $4 ($400). Breakevens are $91 and $109. Stock at $120: profit $1,100. Stock anywhere from $95 to $105: loss $400.
The main risks, in plain words
- The stock has to move a lot just to break even.
- Time decay hits both options.
- A drop in implied volatility can hurt both legs.
Beginner FAQ
Why choose a strangle over a straddle?
It costs less up front, at the cost of needing a bigger move.
Read next
What Is Implied Volatility (IV)? · All Learn articles
Related strategies
Long Straddle · Iron Condor · Long Put
Watch: further explanation
Long Strangle Options Strategy (Best Guide w/ Examples!) — projectoption
Long Strangle Option Strategy - Neutral Options Strategies — Option Alpha