You're expecting a big move in a stock — you just don't know which way. Sound familiar? A long strangle works a lot like a long straddle, but with one key difference: the call and the put have different strike prices. That makes it cheaper to enter, while still giving you exposure to a significant swing in either direction.
Here's how it works.
What is a long strangle?
A long strangle combines two options on the same stock:
Buy a call option at a higher strike price
Buy a put option at a lower strike price
Both use the same expiry date, but the strikes are set on either side of where the stock is currently trading — both out of the money. The call profits if the stock rises past the upper strike. The put profits if it falls below the lower strike. If the stock sits still, both options lose value.
Because it uses two options contracts, this is a multi-leg strategy. The total premium paid for both legs is the most you can lose.
Legs of the trade: 2 (long call at higher strike + long put at lower strike) Sentiment: Expecting increased volatility (direction doesn't matter)
Strangle vs. straddle: what's the difference?
Both strategies bet on a big move without picking a direction. The difference is cost and structure.
A straddle uses the same strike price for both the call and the put — typically at the money. A strangle uses two different strikes, both out of the money. That makes a strangle cheaper upfront than a straddle on the same stock with the same expiry. The trade-off: the stock needs to move further before you start making money. Whether one is better than the other comes down to your view on how big the move will be and how much you want to spend to express it.
When does a long strangle make sense?
Like a straddle, strangles tend to be useful around events that could meaningfully move a stock — earnings reports, product launches, regulatory decisions. If you think the market is underestimating the magnitude of a potential move, buying a strangle before that event gives you exposure to the swing at a lower cost than a straddle.
The catch: if an event is widely anticipated to be a big deal, options prices will rise ahead of it as traders price in the expected movement. This is called an increase in implied volatility. A pricier strangle means your break-even points move further out, and you need an even bigger move to profit. If the event turns out to be a non-event, implied volatility drops and both options lose value fast — even if the stock barely moved.
A real example (with fake numbers)
Let's say Marcus has been tracking PEAR stock, currently trading at $47.50. A major announcement is coming up. He thinks PEAR is going to make a significant move — he just doesn't know which direction. He sets up a long strangle.
Here's what he does:
Buys 10 PEAR January 45 puts at $0.65 each
Buys 10 PEAR January 50 calls at $0.60 each
His total cost — and maximum possible loss — is $1.25 per share, or $1,250 across all 10 contracts (10 contracts × 100 multiplier × $1.25).
The best case: maximum profit
The further PEAR moves past either strike, the more the strangle is worth. There's no cap on the upside if PEAR surges. And while a stock can only fall to zero, a big enough drop can still be very profitable.
Question: PEAR is at $47.50 when Marcus sets up the strangle. A week later, PEAR climbs to $53. What's his unrealized profit (before fees and commissions)?
Answer: $1,750
The put is out of the money — it expires worthless. The call is in the money.
Long call: ($53 – $50 – $0.60) × 10 × 100 = $2.40 × 1,000 = $2,400
Long put: –$0.65 × 10 × 100 = –$650
$2,400 + (–$650) = $1,750
The worst case: maximum loss
PEAR barely moved. The announcement came and went, and the stock sat somewhere between the two strikes. When that happens, both options expire worthless and Marcus loses his full premium.
The maximum loss is the total premium paid: $1,250.
Question: PEAR is at $47.50. A week later, it's relatively unchanged at $48. What's Marcus's unrealized profit or loss?
Answer: –$1,250
Both options are out of the money. Marcus loses everything he paid upfront.
Long call: –$0.60 × 10 × 100 = –$600
Long put: –$0.65 × 10 × 100 = –$650
–$600 + (–$650) = –$1,250
The break-even
A strangle has two break-even points — one above the call strike, one below the put strike. The stock needs to move past one of these prices for the trade to turn profitable.
Upside break-even: Call strike + total premiums paid Downside break-even: Put strike – total premiums paid
Question: What are Marcus's break-even prices, assuming total fees and commissions are $20 ($0.20 per share)?
Answer: $51.45 on the upside | $43.55 on the downside
Total premium + fees: $0.60 + $0.65 + $0.20 = $1.45
Upside: $50 + $1.45 = $51.45
Downside: $45 – $1.45 = $43.55
PEAR needs to climb above $51.45 or fall below $43.55 for Marcus to make money. The bigger the move beyond those levels, the better.
What Marcus is actually hoping for
He wants PEAR to make a decisive move — well above $51.45 or well below $43.55. A sharp swing in either direction is the ideal outcome. What he doesn't want is for the stock to hover somewhere between the two strikes, for the event to fizzle, or for implied volatility to drop before either option picks up enough value to offset his cost.
The main risk: paying for a move that never comes
The only thing Marcus can lose is the $1,250 he paid upfront. But that can disappear quickly if PEAR stays flat, if the anticipated event turns out to be underwhelming, or if implied volatility collapses after the announcement. Time decay also erodes both options the longer PEAR stays between the strikes. Strangles are most vulnerable when the stock goes quiet.
Putting it all together
A long strangle is a cost-effective way to position for a big move without having to call the direction. Compared to a straddle, you pay less upfront — but you need the stock to move further to make money. For investors who think a stock is about to make a dramatic move and want to keep their initial outlay lower, a strangle is worth considering.