Unlocking Volatility: The Complete Guide to the Long Strangle Options Strategy

In options trading, where positioning is the primary factor for success, traders often seek strategies that can profit from large price moves without a directional bias. The long strangle options strategy is one of them, and it is a highly effective strategy when employed by a volatility trader.

Directional plays are simple, but the long strangle strategy allows traders a chance to earn money on large moves, whether the price soars or plummets. The long strangle, when applied properly in the Indian derivatives market, particularly in the case of instruments such as NIFTY or Bank NIFTY, can be a powerful weapon in the trader’s arsenal.

Alright, then, let us take a deep dive into the mechanics of this strategy, the reasons an investor would employ a long strangle strategy, the best time to use long strangle in the Indian market, and how it compares to its cousin, the short strangle.

What is a Long Strangle Options Strategy?

Long strangle options strategy involves buying an out-of-the-money (OTM) call option and an OTM put option of the same underlying, but with the same expiry date at different strike prices.

And this is how the position usually looks:

Buy 1 OTM Put Option

Buy 1 OTM Call Option

The expiry dates of the two are the same.

This combination brings about a non-directional trade. It profits when the underlying price changes significantly, either up or down. The greater the move, the greater the profit potential.

E.g. when NIFTY is 25,000, you can buy:

24,800 Put

25,200 Call

The net premium paid is your worst loss. In theory, the profit is limitless as long as the market shifts significantly in either direction beyond your break-even ranges.

When Would Someone Employ a Long Strangle?

Long strangle is best suited to traders who anticipate high volatility, but do not have a directional view.

The usual reasons are:

• News Event Uncertainty

  
  

  Big moves can be made by events such as the RBI monetary policy, the Union Budget, corporate earnings or geopolitical tensions. Traders are not interested in directional guessing; they simply wish to ride the move.

  
  

• Big Volatility Prediction

  
  

  The trader thinks that the implied volatility (IV) is going to increase, and this will make both options valuable.

  
  

• Breakout Anticipation

  
  

  Technical patterns such as triangles or consolidations are technical clues that a large breakout or breakdown is imminent.

  
  

  Simply put, this strategy is employed when a trader anticipates the market to make a “large move” in a direction, but is not sure of the direction itself.

When is the Best Time to Trade a Long Strangle in the Indian Market

Everything with long strangles is timing. Because it is a debit strategy, you pay a premium upfront, thus it may be costly to utilise at the wrong time.

The following is the strategy to employ a long strangle in the Indian market:

• Pre-Budget or Pre-RBI Policy Weeks

  
  

  The market anticipates volatility and directional moves.

  
  

• Corporate Results Season

  
  

  Sharp moves can be witnessed in stocks such as Infosys, Reliance, or HDFC after the results.

  
  

• Before Supreme Court Decisions or Election Outcomes

  
  

  Legal and political occurrences tend to generate gaps or trends.

  
  

• Chart Breakout Setups

  
  

  When indices or large-cap stocks are trading in a narrow range.

Such as example is a long strangle in NIFTY can work wonders during the Union Budget week or when international events such as US Fed rate decisions overlap with expiry.

What is the Long Strangle Strategy?

So, how do we do it with NIFTY? Let us see.

Current NIFTY Spot: 25,000

Purchase 24,800 PE at 60

Purchase 25,200 CE at 70 rupees

Total Premium Paid: 130.

Breakeven Points:

At upside 25,200 + 130 = 25,330.

At downside 24,800 - 130 = 24,670.

The strategy will incur a loss (maximum loss ₹130 per lot) in case NIFTY expires between 24,670 and 25,330.

Above 25,400 or below 24,600, and the NIFTY will begin to give profits.

Benefits of Long Strangle Compared to Short Strangle

Although both strangles are constructed with call and put options, the payoff and risk profiles of the two are quite different.

Feature	Long Strangle	Short Strangle
Risk	Limited to premium paid	Unlimited on either side
Reward	Unlimited	Limited to premium paid
View	High Volatility	Range-bound Market
Margin	Limited margin needed	High margin requirement
Ideal Use	Pre-event or Breakout	Post-event or Consolidation

What are the benefits of a long strangle as compared to a short strangle?

• Defined Risk

  
  

  You know in advance the most you can lose- just the premium paid.

  
  

• Unlimited Earning Potential

  
  

  Particularly appealing to quick-paced, news-oriented markets.

  
  

• No Margin Requirement

  
  

  Long strangles do not involve huge capital or unlimited risk, unlike short strangles.

  
  

• Simplicity

  
  

  Simple to implement and track. No active management or hedging required.

Long Strangle Strategy Risks and Challenges

The long strangle is not without its disadvantages, despite the fact that it is safer than the short strangle.

• Time Decay (Theta):

  
  

  When the market is not shifting fast, the two options are losing value with each passing day.

  
  

• Premium Erosion:

  
  

  Particularly when the implied volatility plunges following the event.

  
  

• Needs Big Moves:

  
  

  Moderate or slow movements might be insufficient to pay the premium.

Therefore, the long strangle options strategy should be used smartly, preferably just before the anticipated volatility spike.

How to Make the Best Use of the Long Strangle Strategy

These are the pro tips of traders in the Indian market:

• Utilise Weekly Expiry Options

  
  

  Cheaper premium, faster realisation.

  
  

• Select High-Beta Stocks or Indices.

  
  

  Good candidates are NIFTY, Bank NIFTY, Reliance, Adani Enterprises, or Infosys.

  
  

• Study Implied Volatility

  
  

  Buy when IV is low and should go up. Do not use when IV is already elevated unless you think it will become even more elevated.

  
  

• Avoid Holding To Expiry

  
  

  Sell the position on the large move or once your target profit has been achieved. Do not wait to be eroded on expiry.

  
  

• Apply Technical Breakouts

  
  

  Time the entry using chart setups such as triangles, flags, or Bollinger Band squeezes.

NIFTY Long Strangle Strategy

Suppose it is the RBI policy week. The market is jittery, and NIFTY is trading in a range of around 25,000.

You execute:

Buy 24,800 Put @ 60

Buy 25,200 Call @ 65

Net Debit: 125

NIFTY drops to 24,600 post-policy announcement.

Your 24,800 PE is valued at 200; call falls to 10.

Total = 210

Profit = 210 -125 = 85 per lot ( 6,375 one NIFTY lot)

Such a high-volatility occurrence turns out long strangle strategy in NIFTY to be a profitable low-risk trade where directional bias is absent.

Conclusion

The long strangle options strategy is a bet on turmoil. When the market brings a storm, then you have a windfall. When it remains placid, your capital is eaten away slowly.

It is not a daily strategy or a strategy every trader should use. But when used discretionally, say in volatile times or in the run-up to important events, it can provide superb risk-adjusted returns.

What then is the rationale behind a long strangle strategy?

Since they want to take advantage of uncertainty and not take sides. They do not want to be right on direction- they simply want the market to go tough.