Long Strangle

Buy an OTM call and an OTM put — a cheaper straddle that needs a bigger move to pay off.

A long strangle buys an out-of-the-money call and an out-of-the-money put. It's a cheaper cousin of the straddle that requires a larger move to profit.

Market outlook

Same as the straddle — you expect a big move or a volatility expansion — but you want to pay less premium.

Construction

• Buy 1 call at higher strike $K_c$ for $P_c$.
• Buy 1 put at lower strike $K_p$ for $P_p$ ($K_p < K_c$).
• Total cost $D = P_c + P_p$.

Risk / reward

• Max loss: $D$, if the stock finishes between $K_p$ and $K_c$.
• Breakevens: $\text{BE}_{up} = K_c + D, \qquad \text{BE}_{down} = K_p - D$

Straddle vs. strangle

• Strangle costs less (both legs OTM) but has a wider dead zone between strikes, so it needs a bigger move.
• Straddle costs more but starts working sooner.

Risks & management

• Same enemies: IV crush and theta.
• Because both legs are OTM, a move that's large-but-not-large-enough still loses everything. Size accordingly.