11.44Strangle (Long)
1What is it?
Buy an OTM call and an OTM put at different strikes.
2Why does it exist?
When it is used: Like a straddle (big move, unknown direction) but cheaper, and it needs a bigger move.
3Diagram
Max profit
Unlimited
Max loss
₹9,750
Breakeven
₹24,550 / ₹25,450
4Calculation
- Pay 80 + 70 = 150 points.
- Expiry 26,000 → (700 − 150) × 65 = +₹35,750.
- Expiry 25,100 → −₹9,750.
- Maximum profit: Unlimited on the upside; large on the downside
- Maximum loss: Total premium: 150 × 65 = ₹9,750 (expiry between strikes)
- Breakeven: 24,550 and 25,450
5Risks
- Limited-risk position: the most you can lose is known in advance.
- Premiums shown are hypothetical; real premiums depend on volatility and time to expiry.
6Quick revision
- Max profit: Unlimited on the upside; large on the downside
- Max loss: Total premium: 150 × 65 = ₹9,750 (expiry between strikes)
- Breakeven: 24,550 and 25,450
7Knowledge check
Q1. Strangle vs straddle cost?Show answer
Strangle is cheaper.
Q2. What does it need to profit?Show answer
A larger move beyond either breakeven.
Q3. Short strangle risk?Show answer
Unlimited (on the call side).
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