Want to profit from explosive market volatility but don't want to pay the massive premium of a Straddle? The Long Strangle is your discounted ticket to the action.
In the options market, certainty is expensive. If you know a company is about to release an industry-altering earnings report, you want to be positioned for a massive price swing. The default approach is the Straddle (buying an At-The-Money Call and Put), but because those options are right at the current stock price, they cost a fortune.
For traders looking to risk less upfront capital while maintaining unlimited profit potential, the Long Strangle is the weapon of choice.
What is a Long Strangle?
A strangle is an options strategy where you simultaneously buy an Out-of-the-Money (OTM) Call and buy an Out-of-the-Money (OTM) Put. Both options must have the exact same expiration date and belong to the same underlying asset, but they have different strike prices.
By moving your strikes away from the current stock price, the options become significantly cheaper. The trade-off? The stock has to move further and faster for you to make a profit. You are exchanging a higher probability of success for a much lower cost of entry.
Long Strangle Profit & Loss (P&L) Chart
Notice the "Flat Bottom" Loss Zone Between the Two Different Strikes
Deep Dive: Real-World Example with Netflix (NFLX)
Imagine Netflix (NFLX) is currently trading at exactly $500 per share. Earnings are announced tomorrow. You know the stock is going to make a massive jump or a brutal dive, but you aren't sure which way.
A Straddle (buying the $500 Call and $500 Put) might cost you a staggering $40.00 ($4,000 total). That is too rich for your blood. Instead, you decide to use a Strangle to widen your net and lower your cost.
Trade Execution (The Strangle):
Action 1: Buy the $470 Put (Out-of-the-money) for $8.00
Action 2: Buy the $530 Call (Out-of-the-money) for $8.00
Current Stock Price: $500
Total Premium Paid (Max Risk): $16.00 ($1,600 total)
Calculating Your Breakeven Points
Because you paid $16.00 total for this position, the stock must move past your strike prices by at least $16.00 before you are genuinely profitable.
- Upside Breakeven: $546.00 ($530 Call Strike + $16 Premium)
- Downside Breakeven: $454.00 ($470 Put Strike - $16 Premium)
If Netflix reports earnings and the stock jumps to $520, you might feel like a genius because the stock rallied. However, your $530 Call is still out-of-the-money and worthless, and your Put is also worthless. You lose the entire $1,600. Netflix must have a hyper-volatile move past $546 or below $454 to generate a profit. This is the danger of the "Flat Bottom" loss zone.
Straddle vs. Strangle
Straddle: Expensive. Uses At-The-Money strikes. Tighter breakeven points. Requires a moderate move.
Strangle: Cheaper. Uses Out-Of-The-Money strikes. Wider breakeven points. Requires a massive, explosive move.
⚠️ The Enemy: Time & Volatility Crush
Both options in a strangle are entirely comprised of "extrinsic" value. This means Theta (Time Decay) will aggressively eat away at your investment every single day. Furthermore, after an earnings report drops, Implied Volatility collapses immediately (IV Crush). If the stock doesn't make an extreme move instantly, the IV crush will wipe out the value of both your call and your put in seconds.
Trading the Breakout Without the Squeeze: CFDs
The Strangle is an excellent theoretical tool, but for retail traders, paying double premiums and fighting the brutal math of IV Crush can make it a frustrating experience. You can be 100% right about a stock breaking out, but still lose money because the options "deflated" faster than the stock moved.
If you want to trade volatile events without fighting the Greeks, Options CFDs are the modern solution.
Instead of guessing which wide strikes to pick and hoping the stock moves far enough to cover double the premium cost, CFDs allow you to react dynamically. Watch the earnings report hit the wire, observe the real-time volume and direction, and instantly execute a directional Option CFD with zero commissions and flexible leverage. You bypass the complex strangle math, avoid the IV crush trap entirely, and trade pure momentum.
Ready to Trade the News?
Stop losing money to time decay and IV crush. Trade market-moving events instantly with Options CFDs.