Long Strangle

Long strangle is the option strategy with limited risk based on volatility, which lies in the simultaneous buying calls and puts on one asset with higher/lower strikes respectively.

Long strangle has 2 break-even points therefore the buyer expects the stock price to move rapidly in any direction after long-term market flats and triangles, that is he is looking forward to the increased volatility in the underlying stock during the option existence. This strategy has unlimited upward potential and limited (to the call and put premium) downward one.

Long Strangle

Suppose, someone executes long strangle by buying the call option for the premium of $15 with the strike price at $100 and the put option for the premium of $10 when the strike is $90. So, break-even point 1 equals $125 ($100+$25) and break-even point 2 equals $65 ($90-$25). Thus, the buyer makes profit in case of the rapid asset movement beginning from the price of $125 and higher or $65 and lower. The loss is limited and lies between above-mentioned marks.

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