Long Strangle – The Option Strategy Desk Reference

Long Strangle

Strategy: Buy n OTM Calls, Expire 90 DTE

Buy n OTM Puts, Same Expiry

Example:

Price Chart: A series of strong directional price moves

Current IV%: 25% (to reduce premium values)

IV Rank: 10 to 20

Trade: Buy n slightly OTM call options; buy n slightly OTM put options. (All options expire 90 DTE.)

Strike Deltas: (both 1 to 3 strikes OTM)

Long OTM Call 0.50

Long OTM Put 0.50

Goals: A strong directional price move benefits one of the long options as it moves deeper ITM. The opposite long option is closed as soon as the trader is confident in a sustained directional price move.

Manage: Watch for a strong directional price move. Respond by closing the losing long options and retaining the profitable long options as they move deeper ITM. Once a satisfactory profit is achieved, sell the remaining long options before a price reversal occurs.

Profit: Close when the remaining long options achieve a profit of 30 ­percent or more.

Loss: Close if the directional move changes and begins to reduce the value of the remaining option premium.