Long Strangle Options Strategy: Low-Cost Bet on Big Market Moves

Level: Intermediate
Long Strangle Options Strategy: Low-Cost Bet on Big Market Moves

The Long Strangle is a volatility strategy where you buy an out-of-the-money Call and Put with the same expiry. It costs less than a Long Straddle and profits if the market makes a big move in either direction.

Long Strangle Options Strategy: Low-Cost Bet on Big Market Moves

The Long Strangle is a popular volatility strategy where you buy an Out-of-the-Money Call and an Out-of-the-Money Put on the same underlying, with the same expiry. This setup reduces cost compared to a Long Straddle, while still providing unlimited profit potential if the market makes a strong move in either direction.

  • Max Loss: Limited to total premiums paid.
  • Max Profit: Unlimited on upside, very large on downside.
  • Market View: Expecting high volatility but not sure of direction.
Think of a Long Strangle as a cheaper lottery ticket on market volatility. You risk less compared to a Straddle, but you need a bigger move to make profits.

When to Use a Long Strangle

The Long Strangle works best when:

  • You expect a large move in the market but don’t know the direction.
  • Events like RBI policy, Union Budget, or election results are near.
  • You want lower cost exposure compared to a Long Straddle.

Setup Checklist

  • Underlying: Prefer liquid indexes like NIFTY or BankNIFTY.
  • Strike Selection: Choose OTM Call above spot and OTM Put below spot.
  • Expiry: Short-term or event-driven for maximum effect.
  • Cost: Add Call + Put premiums (maximum loss).

Entry Rules

  1. Buy 1 OTM Call option.
  2. Buy 1 OTM Put option (same expiry).
  3. Record net premium paid = maximum risk.

Example: NIFTY Long Strangle

Assume NIFTY is at 20,000 and expiry is 26th September 2025:

  • Buy 20,200 CE @ ₹60
  • Buy 19,800 PE @ ₹55

Total Premium Paid: ₹115 × 75 = ₹8,625 (Max Loss)

Breakeven Points:

  • Upper BE = 20,200 + 115 = 20,315
  • Lower BE = 19,800 – 115 = 19,685

Payoff at Expiry:

  • If NIFTY closes at 20,500 → Profit ≈ ₹13,875
  • If NIFTY closes at 19,500 → Profit ≈ ₹13,875
  • If NIFTY closes between 19,685 – 20,315 → Loss (max –₹8,625)
Long Strangle payoff chart with capped loss and unlimited profit potential

Risk & Management

  • Max Loss: Premiums paid (₹8,625 here).
  • Max Profit: Unlimited upside, very large downside.
  • Theta: Negative — time decay erodes premiums.
  • Vega: Positive — benefits from rise in implied volatility.

Exit Rules

  • Exit if big move happens — don’t wait until expiry.
  • Cut loss early if volatility drops or premiums erode.
  • Close before expiry if market remains flat.

Advantages of Long Strangle

  • Cheaper than Long Straddle.
  • Profits in either direction.
  • Limited and known risk.

Disadvantages of Long Strangle

  • Needs a bigger move than Straddle to break even.
  • Time decay eats away premium quickly.
  • Post-event IV crush can cause losses even with moves.

Comparison: Long Straddle vs Long Strangle

Factor Long Straddle Long Strangle
Strike Selection ATM Call + ATM Put OTM Call + OTM Put
Cost Higher Lower
Breakeven Range Narrower Wider
Profit Potential Unlimited Unlimited
Tip: Use Long Strangles when you want low-cost exposure to events. Remember — they need larger moves than Straddles to pay off.

The Long Strangle is a smart way to bet on market volatility with limited risk and lower cost. It is ideal for event-driven trading, where big moves are expected but the direction is uncertain.