A long strangle is a popular options trading strategy used to profit from a stock’s price movement in either direction. It involves buying both a call option and a put option at the same time, with the same expiration date but at different strike prices. The strike price of the call option is typically higher than the current price of the underlying asset, while the strike price of the put option is typically lower.
The idea behind a strangle is that the options buyer expects the underlying asset to experience a significant price movement, but is unsure which direction it will go. By buying both a call option and a put option, the trader has the potential to profit from either a price increase or a price decrease.
If the price of the underlying asset increases, the call option will be profitable while the put option will expire worthless. If the price of the underlying asset decreases, the put option will be profitable while the call option will expire worthless. If the price of the underlying asset remains relatively unchanged, both options will expire worthless.
It’s important to note that a strangle is a high-risk strategy because it requires a significant price movement in order to be profitable. As a result, it is typically used by experienced options traders who are comfortable taking on higher levels of risk in exchange for the potential for higher returns