Important notice
The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

Return to Option Strategies

The Long Strangle is used when buying a Call or Put. It is considered a neutral play, because we are looking to profit from either a positive or negative stock move. We look for a volatile stock with the potential to move $10 or better either up or down. The more volatile the stock the better.

• Buy out of the money (OTM) Calls for a particular month
• Buy out of the money (OTM) Puts for the same month as the Calls
• Profits are made when the stock moves above or below the strike price
• Maximum risk is equal to the net debit.

Example: XYZ Stock is trading at 77.50

• Buy the April 80.00 strike price Call Options at 2.06
• Buy the April 75.00 strike price Put Options at 1.97
• Break even level for the Calls, Strike Price + Net Debit = 80.00 + 4.03 = 84.03
• Break even level for the Puts, Strike Price + Net Debit = 75.00 - 4.03 = 70.97

There is unlimited potential as long as the Stock has momentum on either direction. A loss will take place if the stock stalls between 75.00 and 80.00 strike price by expiration day.

It is so important to understand the magnitude of the stock patterns before choosing an option with the right strike price and expiration month.

Always take in to consideration the cost of the brokers fees and margin cost, etc.