Name: Long Strangle

Setup: Buy (long) Strike A put and Buy (long) Strike B call

Bias: Extreme Bullish and Extreme Bearish

 

Break-Even: Two break-even points:

 

  • Strike A – Debit paid
  • Strike B + Debit paid

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