Long Strangle
A long strangle profits when a stock makes a large move in either direction. It costs less than a straddle because you buy out-of-the-money options on both sides — but that lower cost comes with a requirement for a bigger move to break even.
How a Long Strangle Works
You buy an out-of-the-money call above the current stock price and an out-of-the-money put below it, both with the same expiration. Both options cost premium. If the stock makes a large enough move in either direction — above the call strike or below the put strike — one of your options gains value while the other expires worthless.
The key difference from a straddle: both options start out of the money, so they're cheaper. But because neither has intrinsic value at entry, you need a bigger percentage move to profit.
Example: A stock is at $100. You buy the $107 call for $2.00 and the $93 put for $2.00. Total cost: $4.00 per share ($400 total). Your upper breakeven is $111 ($107 + $4). Your lower breakeven is $89 ($93 − $4). The stock needs to move more than 11% in either direction by expiration to profit.
Strangle vs Straddle
Both strategies profit from large moves in either direction. The straddle uses at-the-money options for both legs — higher cost, lower required move. The strangle uses out-of-the-money options — lower cost, higher required move.
The strangle is better when you expect a very large move and want to reduce your upfront cost. The straddle is better when you expect a moderate move and want a lower breakeven. Neither is universally superior — the right choice depends on how large a move you expect relative to the cost of each structure.
Maximum Profit, Maximum Loss, and Breakeven
Maximum profit: Unlimited on the upside. Capped on the downside at the put strike minus total premium paid (stock can only fall to zero). In the example: ($93 − $4) × 100 = $8,900 maximum on the downside.
Maximum loss: The total premium paid. In the example, $400. This occurs if the stock closes between the two strikes at expiration — both options expire worthless.
Breakeven points: Upper: call strike plus total premium ($107 + $4 = $111). Lower: put strike minus total premium ($93 − $4 = $89).
When to Use a Long Strangle
You expect a very large move but want to spend less than a straddle costs. If you think earnings could move the stock 15–20%, buying cheap OTM options on both sides is more capital-efficient than buying ATM options.
Implied volatility is low. At low IV, OTM options are cheap. The strangle's breakeven points are closer to the current price when you're not overpaying for volatility.
You're unsure about the direction of a binary event. Like the straddle, the strangle doesn't require a directional view — you're buying exposure to movement itself.
Frequently Asked Questions
Can I lose more than I paid for a strangle?
No. Your maximum loss is the total premium paid, regardless of what happens to the stock. The worst case is both options expiring worthless.
When should I close a strangle?
If the big move happens quickly, close early and take the profit — don't hold through the full expiration and risk giving back gains to time decay. If the stock is flat halfway through the trade, the position is decaying daily and cutting the loss early is often better than waiting.
Why would I use a strangle instead of just buying a call or put?
If you're unsure about direction, buying only a call or put means you lose everything if the stock moves the other way. A strangle protects against directional uncertainty — you're hedged for movement in either direction.