Long Options Strangle – A Delta Neutral Strategy Overview

• Strategy: Buy OTM put options contract + Buy OTM call options contract (ratio of 1 to 1)

• Number of legs: 2

• Market Prognosis = Either Bullish and Bearish (Non-Directional)

• Implied Volatility = In the low 20% of the last one year.  This requires specialist software such as Optionetics Platinum.

• Expiration Month = 60 days or more to expire

• Max Loss = Risk = Limited to premium paid for strangle = Premium paid for both calls and puts

• Max Profit = Unlimited

• Upside Breakeven Point = Call strike price + premium paid for both legs

• Downside Breakeven Point = Put strike price – premium paid for both legs

• Margin = None

• Advantage over Straight Call or Put = Make money regardless stock is up or down

• Advantage over Put or Call Spread = reason above + unlimited profit in either direction.

• Disadvantage over Straight Call or Put and Put or Call Spread = Significant higher cost + exposure to an IV crash

• Advantage over Straddle = Lower cost + Faster to Double

• Disadvantage over Straddle = Bigger move in stock needed to profit

Tags: Delta Neutral, Long, Options Strangle, Strategy Overview

Category: Straddle & Strangle