Long Strangle
An options strategy that buys out-of-the-money calls and puts to profit from a large directional move at a lower cost than a straddle.
What is Long Strangle?
A long strangle is a non-directional options strategy constructed by simultaneously buying an out-of-the-money call at a higher strike and an out-of-the-money put at a lower strike, both with the same expiration date on the same underlying asset. Because both options are purchased out of the money, the net premium paid is less than a long straddle, making the strangle cheaper but requiring a larger underlying move to become profitable. The breakeven points are the call strike plus the net premium paid and the put strike minus the net premium paid. Strangles are useful when a large move is expected but the current implied volatility makes at-the-money options too expensive.
Example
A stock trades at $100. A trader buys the $105 call for $2.00 and the $95 put for $1.50, paying $3.50 total. Upside breakeven is $108.50; downside breakeven is $91.50. Compared to a straddle costing $6.50, the strangle requires a bigger move (8.5% vs 6.5%) to profit, but costs $3.00 less to enter — making it attractive when expecting a major but uncertain directional shock.