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Long volatility · Defined risk

Long
Strangle

Buy an out-of-the-money call and put for a cheaper bet on a big move either way. A flat loss valley sits between the strikes; profit rises once the move clears either breakeven.

What it is

A long strangle means buying one OTM call and one OTM put of the same expiry but at different strikes. It's a cheaper cousin of the straddle: less premium outlay, but you need a larger move to profit because the underlying must travel past the call strike (up) or the put strike (down). Between the two strikes you sit in a flat loss valley.

Key facts

  • Market view: expecting a large move, direction unknown — cheaper than a straddle.
  • Construction: Buy 1 OTM call + Buy 1 OTM put (same expiry, different strikes).
  • Net cost: debit (two premiums) — the most you can lose.
  • Max profit: large/unlimited if the move is big enough.
  • Max loss: total premium paid, anywhere between the two strikes at expiry.
  • Breakevens (two): call strike + total premium, and put strike − total premium.
P&L Underlying price → Put strike Call strike Profit ↑ Profit ↑ Flat loss valley
Long strangle — a flat maximum loss between the strikes; profit rises once a big move clears either breakeven.

How to construct it

  • Buy an OTM call above the current price.
  • Buy an OTM put below the current price, same expiry.
  • Wider strikes cost less but need an even larger move to pay off.

Worked NIFTY example

Suppose NIFTY is near 22,500. Buy the 22,700 call for 60 and the 22,300 put for 55 → total premium 115 (illustrative; lot size 75):

  • Upper breakeven: 22,700 + 115 = 22,815.
  • Lower breakeven: 22,300 − 115 = 22,185.
  • Max loss: 115 (×75 = ₹8,625), anywhere between 22,300 and 22,700 at expiry.
  • Beyond either breakeven, profit grows with the size of the move.

When to use it

  • Before a known catalyst where a big move is likely but direction isn't, and you want a cheaper entry than a straddle.
  • When IV is low and you expect a volatility expansion.

Risks to respect

  • IV crush after the event can sink both OTM legs even on a modest move.
  • Time decay erodes both options daily, and OTM premium melts fast near expiry.
  • You need a move past the strikes plus premium just to break even — wider than a straddle.

Model the strangle live

See both breakevens, the flat valley and how IV affects it on TradePulse's strategy builder.

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Related strategies

  • Long Straddle — same-strike version, costlier but a tighter loss point.
  • Short Strangle — the opposite: sell both legs for rangebound income.
  • Vega — the volatility Greek that drives strangles.