Long Strangle
Buy an OTM call and OTM put for a cheaper volatility bet that needs a larger move than a straddle.
What is a Long Strangle?
A Long Strangle buys an OTM call and an OTM put at different strikes but the same expiry. Like a straddle it profits from a big move in either direction, but because both legs are OTM it costs less. The trade-off is wider breakevens — the underlying must move further before you profit. It is a cheaper way to bet on volatility when you expect a very large move.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Buy 1 OTM Call (above spot).
- Buy 1 OTM Put (below spot), same expiry.
- Total premium paid = maximum loss.
When to Use It
Use when you expect an outsized move but want a lower-cost entry than a straddle, and are willing to need a bigger move. Best when IV is low and a major catalyst looms.
The Greeks
Delta ≈ 0 at entry, Positive Gamma, Positive Vega, Negative Theta.
Risks & Considerations
- Wider breakevens require a larger move than a straddle to profit.
- Both OTM options can expire worthless if price stays in the range.
- Time decay and IV crush erode both legs.
Worked Example (Nifty)
Illustrative trade — lot size 75
Nifty 20,000. Buy 20,300 CE ₹90 + 19,700 PE ₹90 = ₹180 (₹13,500 max loss). Breakevens 19,520 and 20,480. A rally to 20,700 makes the call worth ₹400, profit = (400 − 180) × 75 = ₹16,500. Between 19,520 and 20,480 you lose part or all of the premium.