Long Strangle Option Trading Explained
The long strangle is an options strategy designed for traders who expect a big move in the market but aren’t sure which direction it will take.
Instead of betting up or down, the trader buys both a call option and a put option on the same underlying asset, with the same expiration date but different strike prices. Typically, the call is purchased above the current market price, and the put is purchased below it.
This setup creates a profit opportunity if the underlying asset makes a sharp move in either direction.
- If prices rally, the call gains value
- If prices fall, the put gains value
The trader only needs one side of the strangle to become profitable enough to outweigh the combined cost of both options.
The trade-off is cost. Because the trader is buying two options, the upfront premium is relatively high, and the strategy loses money if the underlying asset stays within a narrow range. For the long strangle to work, the market needs to move enough to cover the initial investment.
Key points about long strangles:
- Profit potential: unlimited on the upside, substantial on the downside (limited only by the asset dropping to zero).
- Risk: limited to the total premium paid for both options.
- Best used when volatility is expected to increase, such as around earnings announcements, economic releases, or major news events.
- Requires patience and a clear understanding of time decay, since options lose value as expiration approaches.
In essence, the long strangle is a bet on movement itself. It’s less about predicting the future and more about saying: something is going to happen, and I want to be ready for it. When timed well, it can be a powerful way to profit from market uncertainty.