Long Strangle
Buy an OTM call and an OTM put at different strike prices. Cheaper than a straddle because both options are out of the money, but requires an even larger stock move to profit.
Payoff Diagram
How to Set Up This Trade
Buy one OTM call and one OTM put, each at different strike prices, same expiration.
Trade Setup — 2 Legs
When to Use This Strategy
You expect a very large move in the stock in either direction. Best when implied volatility is low and a major event or catalyst is approaching.
Tips from the Pros
- 1
Cheaper than a straddle but needs a bigger move to profit — choose strikes wisely.
- 2
Use before earnings or major events when you expect a significant move.
- 3
Watch your breakeven points carefully — the stock needs to move past one of them for a profit.
Quick Reference
Max Profit
Unlimited on the upside (long call). Substantial on the downside (long put).
Max Loss
Limited to the total premium paid for both options. Occurs if the stock stays between the two strike prices at expiration.
Breakeven
Upper breakeven: call strike + total premium paid. Lower breakeven: put strike - total premium paid.
Best IV Environment
Low IV
Time Decay (Theta)
Hurts (negative theta)
Risk Level
Medium RiskLearn More
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