Name: Long Strangle
Description: The long strangle gives you the opportunity to profit if the stock goes up or goes down. The options you buy will be out of the money which reduces the cost over the long straddle. However it will split the strikes apart which increases your break even levels. The underlying has to move enough to cover the cost of both options.
Setup: Buy (long) Strike A put and Buy (long) Strike B call
Bias: Extreme Bullish and Extreme Bearish
Break-Even: Two break-even points:
Max Profit: Unlimited
Max Loss: Debit paid
Margin: No margin requirement
Time Decay: Time decay has an extreme negative effect since it will lower the value of both of your options.
Implied Volatility: After the position has been established you want implied volatility to increase. This will increase the value of your options plus help make the anticipated move.
Notes: A Long Strangle position is a hard position to profit from. You will need a big move that the market hasn't accounted for in a quick period before time decay eats the value from your options.
Featured in Trade Review: None at this time
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