What if you could profit whether a stock goes up or down? If the price explodes in either direction, you win. That’s exactly what the Long Strangle strategy is built for. A few months ago we covered how to build the Long Straddle — a similar strategy, but not the same one. Today we’ll dig into the Long Strangle in depth, with a real Tesla example on ProRealTime.
How it’s built
Simply put: imagine a stock trading at $100. All we need to do is buy a call at strike 105 and buy a put at strike 95. Both options need the same expiration and need to be out of the money, OTM.
- If the stock rises — the call is what makes you money
- If the stock falls — the put is what makes you money
We don’t know which direction the underlying will move. What we’re buying is purely the possibility that the price explodes violently from where it is now.
One advantage of this strategy is that the maximum risk is fully limited to the two premiums you pay. On the flip side, the upside is unlimited and the downside potential is very wide (a stock can’t fall below zero, but the range is still considerable).
Real example: Long Strangle on Tesla
Tesla trading around $326, with an expiration a couple of days out. We build: a put at strike 320 and a call at strike 340, both OTM and with the same expiration.
The Strangle’s numbers
Total debit (premium): $2.03 per share, $203 per contract (100 shares)
Maximum risk: that $203, if Tesla ends up between 320 and 340 at expiration (both options expire worthless)
Lower break-even: put strike minus premium = 320 − 2.03 = $317.97
Upper break-even: call strike plus premium = 340 + 2.03 = $342.03
From the current price (around $326-327), Tesla would need to drop roughly 2.74% or rise 4.62% to reach those break-even points.
If Tesla shoots up to $350 (on a new product, earnings, whatever): the put expires worthless, but the call (strike 340) has $10 of intrinsic value. Subtracting the premium paid, the profit would be roughly $797. And if Tesla drops to $310, the symmetric thing happens with the put: a profit of around $700-800.
Long Strangle vs Long Straddle: the direct comparison
Here’s the most interesting part of the video. With the same Tesla at $326, we also build the Long Straddle: buying a put and a call, both at the same strike, 325 (roughly at the money).
The big difference: the premium
Strangle — total debit of $203
Straddle — total debit of $802
Almost 75% less outlay with the Strangle
But that discount comes with consequences. The Straddle’s break-evens are $316.98 (lower) and $373 (upper) — much narrower than the Strangle’s. If Tesla ends up at $340, the Straddle would already be profitable (the 325 call would have $15 of intrinsic value, for a profit of roughly $698 after subtracting the premium), while with the Strangle, with Tesla exactly at the call’s strike (340), both options would expire worthless and we’d lose the full $203.
The Straddle buys the options right at the current price (at the money), so it starts reacting sooner. The Strangle pays a lot less, but leaves a much wider dead zone in the middle where it doesn’t make money — the move has to be bigger before it starts to profit.
An important nuance: asymmetry
In this specific example, the Strangle’s downside break-even ($317.97) sits slightly closer to the current price than the Straddle’s ($316.98) — even though the Strangle’s put is $5 further away, the savings in premium (almost $6) makes up for it. On the upside, the opposite happens: the Strangle needs to reach $342, while the Straddle is already profitable from $333.
This shows it’s not enough to simply say “the Strangle always needs a bigger move” — you also need to look at the strikes, the premiums, and the volatility skew of each specific option chain.
It’s not a cheaper Straddle: it’s a different strategy
The Long Strangle isn’t simply a cheap version of the Straddle. It’s a completely different strategy. With the Straddle you pay more, but you’re paying for sensitivity near the current price. With the Strangle you risk far less capital, but you depend on the move reaching further-out zones.
With the Straddle you buy movement. With the Strangle you buy the explosion.
The question to ask yourself before choosing
Will it move more than what the options are already pricing in? Whatever the market expects is already baked into the premium you pay. If there’s earnings or a new product launch on a known date, everyone knows about it — and it’s already reflected in the price. Keep this firmly in mind before choosing one strategy or the other, especially with these volatility plays.
Conclusion
The Long Strangle lets you profit whether the stock goes up or down, with risk limited to the premiums paid and a much smaller outlay than the Straddle — but in exchange for needing a bigger move before you start to profit. Neither one is “better”: the Strangle buys the explosion with little capital, the Straddle buys sensitivity near the current price by paying more. The decision comes down to whether you believe the move will exceed what the market is already pricing into the premium.
