Big move either way options strategy
Long strangle
Buy an out-of-the-money call and an out-of-the-money put. Cheaper than a straddle, needs a bigger move.
Big move either wayLow IV (buying cheap premium)Defined riskLevel 3 · Buying options
Long strangle payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $107 call · 30 days · $1.17
Buy 1 $95 put · 30 days · $1.33
Net debit $250
Max profitUnlimited
Max loss−$250
Break-evens$92.50 · $109.50
Chance of profit33%
How it works
- Max loss = both premiums.
- Break-evens: call strike + premiums and put strike − premiums.
When to use it
- You expect a very large move and want a cheaper ticket than the straddle.
Managing the trade
- Close if one side doubles; don't wait for both.
Risks
- The stock staying between the strikes means losing all the premium.