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Long Strangle

A Long Strangle involves buying a call option and a put option at different strike prices but the same expiry. It profits from significant price movement in either direction.

  • Ideal for high-volatility conditions, where a large price move is expected but at a lower cost than a straddle.
  • Buying OTM options reduces the upfront premium cost.
  • Risk is limited to the premium paid for both options.
  • Profits occur if the price moves beyond the breakeven points on either side.

Example:

  • NIFTY trading at 18,000.
  • Buy 18,200 Call at ₹100 and 17,800 Put at ₹90 (lot size = 50).
  • Outcome:
    1. If NIFTY rises to 18,400 at expiry:
      • Call gain = ₹200 × 50 = ₹10,000.
      • Put expires worthless.
      • Net profit = ₹10,000 − ₹9,500 = ₹500.
    2. If NIFTY falls to 17,600 at expiry:
      • Put gain = ₹200 × 50 = ₹10,000.
      • Call expires worthless.
      • Net profit = ₹10,000 − ₹9,500 = ₹500.
    3. If NIFTY stays between 18,200 and 17,800:
      • Both options expire worthless.
      • Net loss = ₹9,500.
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