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Long Straddle (Buy Straddle) Vs Long Strangle (Buy Strangle) Options Trading Strategy Comparison

Compare Long Straddle (Buy Straddle) and Long Strangle (Buy Strangle) options trading strategies. Find similarities and differences between Long Straddle (Buy Straddle) and Long Strangle (Buy Strangle) strategies. Find the best options trading strategy for your trading needs.

Long Straddle (Buy Straddle) Vs Long Strangle (Buy Strangle)

  Long Straddle (Buy Straddle) Long Strangle (Buy Strangle)
Long Straddle (Buy Straddle) Logo Long Strangle (Buy Strangle) Logo
About Strategy The Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View Neutral Neutral
Strategy Level Beginners Beginners
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Unlimited Unlimited
Breakeven Point 2 break-even points two break-even points

When and how to use Long Straddle (Buy Straddle) and Long Strangle (Buy Strangle)?

  Long Straddle (Buy Straddle) Long Strangle (Buy Strangle)
When to use?

The strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.

A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Neutral

When you are not sure on the direction the underlying would move but are expecting the rise in its volatility.

Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

Action
  • Buy Call Option
  • Buy Put Option

  • Buy OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

Breakeven Point 2 break-even points

A straddle has two break-even points.

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call + Net Premium

two break-even points

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Long Straddle (Buy Straddle) Vs Long Strangle (Buy Strangle))

  Long Straddle (Buy Straddle) Long Strangle (Buy Strangle)
Risks Limited

The maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options.

Maximum Loss = Net Premium Paid

Limited

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

Rewards Unlimited

There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.

Unlimited

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Max profit is achieved when at one option is exercised.

One Option exercised

Maximum Loss Scenario

When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Both Option not exercised

Pros & Cons or Long Straddle (Buy Straddle) and Long Strangle (Buy Strangle)

  Long Straddle (Buy Straddle) Long Strangle (Buy Strangle)
Advantages

Earns you unlimited profit in a volatile market while minimizing the loss.

Disadvantage

The price change has to be bigger to make good profits.

The strategy requires significant price movements in the underlying to gain profits.

Simillar Strategies Long Strangle, Short Straddle Long Straddle, Short Strangle