What is a Long Strangle? (Cheaper Volatility Betting)
The long strangle is the straddle's budget-friendly cousin—cheaper to enter, but needing a bigger move to win.
Quick Summary
A Long Strangle is when you buy an out-of-the-money call AND an out-of-the-money put on the same stock with the same expiration. It's cheaper than a straddle but requires a larger price move to profit.
The Long Straddle is a powerful strategy—buy a call and a put at the same strike to profit from big moves in either direction.
But it has one major flaw: It's expensive.
The Cost Problem
ATM options have the highest time value, making straddles pricey
Long Straddle
ATM Call + ATM Put
$1,500
Long Strangle
OTM Call + OTM Put
$500
If you want to bet on volatility but spend less cash upfront, you need the straddle's cheaper cousin: the Long Strangle.
The Definition: What is a Long Strangle?
THE STRATEGY
Buy 1 OTM Call + Buy 1 OTM Put = Different Strikes, Same Expiration
Straddle
Both strikes are the same (At-The-Money). More expensive, but smaller move needed.
Strangle
Strikes are different (Out-of-The-Money). Cheaper, but requires larger move to profit.
By moving the strike prices further apart, you're buying cheaper options. This lowers your upfront cost, but the stock needs to move even further for you to make a profit.
How It Works: Widening the Goal Posts
To execute a strangle, you're essentially bracketing the current stock price with two OTM options.
The "Zone of Death"
Stock must escape this range to profit
PROFIT
↓ Below
ZONE OF DEATH
$180 — $220
PROFIT
Above ↑
If stock stays between strikes at expiration = max loss (both options expire worthless)
A Real-World Example
Stock Price
$200
Put Strike (OTM)
$180
Call Strike (OTM)
$220
Total Cost
$5.00 ($500 total)
Cost Savings: A straddle at $200 strike might cost $15.00 ($1,500). The strangle saves you $1,000 upfront!
The Break-Even Points
To win, the stock price must escape the range you created.
Your Break-Even Points
Lower B/E
$175
Put Strike
$180
Call Strike
$220
Upper B/E
$225
Lower B/E = Put Strike − Premium ($180 − $5) | Upper B/E = Call Strike + Premium ($220 + $5)
The Two Possible Outcomes
At expiration: Tesla releases news and rallies to $250
Your Put ($180) expires worthless → $0
Your Call ($220) has $30 intrinsic value → $3,000
Net Result: $3,000 − $500 cost = $2,500 profit (500% return!)
At expiration: Tesla moves to $215 (decent move, but not enough)
$215 is below your $220 Call strike → expires worthless
$215 is above your $180 Put strike → expires worthless
Net Result: Both options expire worthless. Lose entire $500. (With a straddle, this same $15 move might have been profitable!)
Straddle vs. Strangle: Which One to Choose?
Choosing between these two comes down to how confident you are in the magnitude of the move.
Head-to-Head Comparison
High Cost, Higher Probability
- Pros: Stock doesn't need to move as far to profit
- Cons: You risk more capital upfront
- Smaller "zone of death" around strike
Best for: Expecting a move, but maybe not a catastrophic one
Low Cost, Lower Probability
- Pros: Cheap entry. If wrong, lose less. If right, higher ROI
- Cons: Wide "zone of death" between strikes
- Stock can move 5-10% and you still lose 100%
Best for: "Black swan" hunting or expecting 15%+ moves
The Risk: Time Decay
Because a strangle consists of two OTM options, it's composed entirely of extrinsic value. This means Theta (time decay) is your worst enemy.
Every day the stock stays inside your range ($180 to $220), your strangle bleeds value.
Your Strangle Value Over Time (if stock doesn't move)
If the big move doesn't happen quickly, the position will crumble to zero even if the stock eventually moves in your favor.
Frequently Asked Questions
Summary
The Long Strangle is a "home run or strike out" strategy.
You're paying a small fee to see if the market crashes or rockets. Most of the time, the market will just drift, and you'll lose your small fee. But on the rare occasions when chaos strikes, the strangle offers some of the highest potential percentage returns in the options world.
The Strangle Trade-Off: Pay less upfront, but need a bigger explosion to profit. If you're hunting for black swan events or extreme earnings reactions, the strangle is your budget-friendly ticket.
Important: Both straddles and strangles are speculative strategies with high loss rates. The majority of these trades result in total loss of premium. Only use capital you can afford to lose entirely.
