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     Option Trading Explain
      Benefits and Risks
     Options Strategies:
     Long Call
     Short Call
     Long Put
     Short Put
     Bull Call Spread
     Bear Call Spread
     Bull Put Spread
     Bear Put Spread
     Long Straddle
     Short Straddle
     Long Strangle
     Short Strangle
     Butterfly Spread
     The Collar Strategy
 

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The long strangle, also known as buy strangle or simply "strangle", is a neutral strategy in options trading that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date.

Long Strangle Construction

Buy 1 OTM Call
Buy 1 OTM Put

The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.

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Unlimited Profit Potential

Large gains for the long strangle option strategy is attainable when the underlying stock price makes a very strong move either upwards or downwards at expiration.

The formula for calculating profit is given below:

Maximum Profit = Unlimited
Profit Achieved When Price of Underlying > Strike Price of Long Call + Net Premium Paid OR Price of Underlying < Strike Price of Long Put - Net Premium Paid
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Net Premium Paid

Limited Risk
Maximum loss for the long strangle options strategy is hit when the underlying stock price on expiration date is trading between the strike prices of the options bought. At this price, both options expire worthless and the options trader loses the entire initial debit taken to enter the trade.

The formula for calculating maximum loss is given below:

Max Loss = Net Premium Paid + Commissions Paid
Max Loss Occurs When Price of Underlying is in between Strike Price of Long Call and Strike Price of Long Put
Breakeven Point(s)There are 2 break-even points for the long strangle. The breakeven points can be calculated using the following formulae.

Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid



 

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