Long Strangle: how the position works
A straddle built from out-of-the-money strikes: buy a call above the market and a put below it. The lower premium is the attraction and the wider breakevens are the cost, so it needs a bigger move to pay but risks less capital to find out. For the same money you can hold more strangles than straddles, which is the usual reason to prefer it.
- Market view
- Volatility — direction-agnostic
- Opened for
- Debit
- Maximum profit
- Unlimited above; bounded below by K₁ − total debit.
- Maximum loss
- The total debit. Realised across the whole range between the two strikes, not at a single point as in a straddle.
- Breakeven
- K₂ + total debit above, and K₁ − total debit below, at expiry.
How it is built
- Buy 1 out-of-the-money call at strike K₂
- Buy 1 out-of-the-money put at strike K₁, K₁ < K₂, same expiry
All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.
Before expiry: the Greeks
Delta near zero if the strikes are chosen symmetrically, though on equity indices they rarely are — put skew means an equidistant put costs more than the call, so a strangle placed by strike distance is usually short delta by construction. Long gamma and long vega, but both are lower than a straddle's because out-of-the-money options carry less of each. Short theta, though less per day than a straddle.
When to use it
When you expect a large move and want to pay less for the privilege, or when a straddle's premium is simply too large relative to the account. The wider the strikes, the more this becomes a bet on a tail rather than on movement generally.
What goes wrong
- The dead zone is wide. Any finish between the two strikes loses the entire premium, and that region covers most realistic outcomes.
- Both legs decay simultaneously and neither has intrinsic value to defend it, so a quiet fortnight is very costly.
- Choosing strikes by equal distance rather than equal delta leaves an unintended directional bias on any underlying with skew.
A worked example
QQQ at 500. Buy the 520 call at 6.10 and the 480 put at 7.40, 45 days out.
- Total debit paid
- $13.50 per share — $1,350 for one contract pair
- Upper breakeven
- $533.50 (520 + 13.50)
- Lower breakeven
- $466.50 (480 − 13.50)
- Maximum loss
- $1,350, anywhere between 480 and 520
- Profit if QQQ finishes at 560
- $2,650 ((560 − 520 − 13.50) × 100)
Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these.
Common questions
How do I pick the strikes?
By delta rather than by distance. Matching the call and put deltas — 20-delta against 20-delta, say — gives a position that is genuinely direction-neutral, which equal strike distances will not on a skewed underlying.
Related strategies
- Long StraddleVolatility — direction-agnostic
- Iron CondorNeutral — range-bound
- Risk ReversalBullish — leveraged, undefined risk
- Calendar SpreadNeutral — long volatility of time
Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.