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Long Strangle (Buy Strangle) Vs Short Strangle (Sell Strangle) Options Trading Strategy Comparison

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

Long Strangle (Buy Strangle) Vs Short Strangle (Sell Strangle)

  Long Strangle (Buy Strangle) Short Strangle (Sell Strangle)
Long Strangle (Buy Strangle) Logo Short Strangle (Sell Strangle) Logo
About Strategy 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 The Short Strangle (or Sell Strangle) is a neutral strategy wherein a Slightly OTM Call and a Slightly OTM Put Options are sold simultaneously of same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience a very little volatility in the near term. It is a limited profit and unlimited risk strategy. The maximum profit earn is the net premium received. The maximum loss is achieved when the underlying moves either significantly upwards or downwards at expiration. A net credit is taken to enter into this strategy. For this reason, the Short Strangles are Credit Spreads. The usual Short Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY S... Read More
Market View Neutral Neutral
Strategy Level Beginners Advance
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point two break-even points two break-even points

When and how to use Long Strangle (Buy Strangle) and Short Strangle (Sell Strangle)?

  Long Strangle (Buy Strangle) Short Strangle (Sell Strangle)
When to use?

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.

The Short Strangle is perfect in a neutral market scenario when the underlying is expected to be less volatile.

Market View Neutral

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

Neutral

When you are expecting little volatility and movement in the price of the underlying.

Action
  • 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.

  • Sell OTM Call
  • Sell OTM Put

Sell 1 out-of-the-money put and sell 1 out-of-the-money call which belongs to same underlying asset and has the same expiry date.

Breakeven Point 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

two break-even points

A strangle has two break-even points.

Lower Break-even = Strike Price of Put - Net Premium

Upper Break-even = Strike Price of Call+ Net Premium"

Compare Risks and Rewards (Long Strangle (Buy Strangle) Vs Short Strangle (Sell Strangle))

  Long Strangle (Buy Strangle) Short Strangle (Sell Strangle)
Risks 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.

Unlimited

The maximum loss is unlimited in this strategy. You will incur losses when the price of the underlying moves significantly either upwards or downwards at expiration.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss = Strike Price of Short Put - Price of Underlying - Net Premium Received

Rewards 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

Limited

For maximum profit, the price of the underlying on expiration date must trade between the strike prices of the options. The maximum profit is limited to the net premium received while selling the Options.

Maximum Profit = Net Premium Received

Maximum Profit Scenario

One Option exercised

Both Option not exercised

Maximum Loss Scenario

Both Option not exercised

One Option exercised

Pros & Cons or Long Strangle (Buy Strangle) and Short Strangle (Sell Strangle)

  Long Strangle (Buy Strangle) Short Strangle (Sell Strangle)
Advantages

The strategy offers higher chance of profitability in comparison to Short Straddle due to selling of OTM Options.

Disadvantage

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

Limited reward with high risk exposure.

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