Long Strangle
A long strangle buys an out-of-the-money put and an out-of-the-money call in the same expiration. It's the discount version of a straddle: cheaper to put on, but the stock has to travel further before it pays.
When it makes sense
- You expect a violent move either way and want more leverage than a straddle
- IV is cheap relative to the stock's realized swings
- You accept a lower win rate for a much larger payoff when right
How it works
Buy a put below the stock and a call above it, same expiration — commonly around 20-delta each side. The total debit is your max loss. Breakevens are the put strike minus the premium and the call strike plus the premium.
Risk & reward
Maximum loss: the debit, lost whenever the stock finishes between the strikes — which is often. Maximum profit: unlimited. Strangles are cheap lottery tickets on volatility: most expire worthless, the winners pay for many losers.
Worked example
Stock at $80. Buy the 30-day $72 put and $88 call for $1.60 total ($160). Stock at $95: the call is worth $7 — a $540 profit. Anywhere between $72 and $88: the full $160 is gone.
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