Definition
Long Strangle
A long strangle buys an out-of-the-money call and an out-of-the-money put to profit from a large move at lower cost.
Like a long straddle but cheaper: you buy a call above the spot and a put below it, both out-of-the-money. The lower combined premium means a lower break-even cost, but the underlying must move further to become profitable since both legs start out worthless.
NSE traders use long strangles before big events when they want cheap exposure to a large swing in Nifty or a volatile stock. As with straddles, IV crush and time decay are the enemies — a quiet, range-bound outcome lets both options expire worthless.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- Long StraddleA long straddle buys a call and a put at the same strike to profit from a big move in either direction.
- Short StrangleA short strangle sells an out-of-the-money call and an out-of-the-money put to earn premium in a quiet market.
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.