Stock Market · Option Strategies

Long strangle

A long strangle is similar to a straddle but cheaper. Instead of buying call and put at the SAME strike, you buy an OTM call and OTM put at different strikes.

Construction

Example: Nifty at 22,000.

• Buy 22,300 call (OTM) @ ₹130
• Buy 21,700 put (OTM) @ ₹120
• Total premium: ₹250

vs Straddle

Straddlebuys ATM call + ATM put. More expensive. Needs smaller move to profit.

Stranglebuys OTM call + OTM put. Cheaper. Needs a LARGER move to profit.

Payoff

• Breakeven above: 22,300 + 250 = 22,550
• Breakeven below: 21,700 − 250 = 21,450
• Between the strikes (21,700-22,300): you lose money. The larger this zone, the bigger the move you need.
• Maximum loss: ₹250 × 75 = ₹18,750

> The strangle is a lottery ticket on volatility. You pay less, but the market needs to move further.

When to use

• When you expect a very large move. Election results, quarterly earnings, major policy events
• When you want to reduce premium outflow versus a straddle
• NOT near expiry. Theta destroys OTM options faster than ATM ones

Practical tip

Buy the strangle 5-10 days before an expected event. Exit once the event is announced. Don't hold through IV crush.

Takeaway. Long strangle buys OTM call and OTM put. Cheaper than a straddle but needs an even bigger move to profit. Best bought before major events, closed after the event. Before IV crush kills value.