Long Straddle & Long Strangle Options Strategy Explained

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What Is Long Straddle?
A long straddle is an options strategy where the trader purchases both a long call and a long put on the same underlying asset with the same expiration date and strike price.

Understanding Long Straddle
The long straddle option strategy is a bet that the underlying asset will move significantly in price, either higher or lower. The profit profile is the same no matter which way the asset moves. Typically, the trader thinks the underlying asset will move from a low volatility state to a high volatility state based on the imminent release of new information.

The strike price is at-the-money or as close to it as possible. Since calls benefit from an upward move, and puts benefit from a downward move in the underlying security, both of these components cancel out small moves in either direction. Therefore, the goal of a long straddle is to profit from a very strong move, usually triggered by a newsworthy event, in either direction by the underlying asset.

Traders may use a long straddle ahead of a news report, such as an earnings release, Fed action, the passage of a law, or the result of an election. They assume that the market is waiting for such an event, so trading is uncertain and in small ranges. When the event occurs, all that pent-up bullishness or bearishness is unleashed, sending the underlying asset moving quickly. Of course, since the actual event's result is unknown, the trader does not know whether to be bullish or bearish. Therefore, a long straddle is a logical strategy to profit from either outcome. But like any investment strategy, a long straddle also has its challenges.

The risk inherent in the long straddle strategy is that the market may not react strongly enough to the event or the news it generates. This is compounded by the fact that option sellers know the event is imminent which increase the prices of put and call options in anticipation of the event. This means that the cost of attempting the strategy is much higher than simply betting on one direction alone, and also more expensive than betting on both directions if no newsworthy event were approaching.

Because option sellers recognize that there is increased risk built into a scheduled, news-making event, they raise prices sufficient to cover what they expect to be approximately 70% of the anticipated event. This makes it much more difficult for traders to profit from the move because the price of the straddle will already include mild moves in either direction. If the anticipated event does not generate a strong move in either direction for the underlying security, then options purchased likely will expire worthless, creating a loss for the trader.

What Is a Strangle?
A strangle is an options strategy in which the investor holds a position in both a call and a put option with different strike prices, but with the same expiration date and underlying asset. A strangle is a good strategy if you think the underlying security will experience a large price movement in the near future but are unsure of the direction. However, it is profitable mainly if the asset does swing sharply in price.

A strangle is similar to a straddle but uses options at different strike prices, while a straddle uses a call and put at the same strike price.

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#LongStraddle #LongStrangle #TradingOptions
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

[JakeBroe]

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[amarctg]

It is the best video found in YouTube on long straddle, strangle. Specially in the wake of recent significance price movement of FAANG stocks, fed interest hike looming large, huge acquisitions etc.Thanks Jake takin onus of educating the mass.

[bobsala]

Nice explanation. You got right to the point and then provided further details and strategies.

[gaetanguimond]

Those strategy would seem to work well on TSLA since the stock is all over the place, would you agree ? Thanks for this very wegood demonstration.

[DansChessLounge]

Great video! You’re able to break complicated information down into simple explanations. Love it… I subscribed!

[crippledgenius]

Yeah ive been doing these a long with credit spreads your videos are super helpful thanks Jake

[misaelarredondo]

I really like your videos on advanced options strategies Jake! You have a good way of explaining them.

[rogerward]

What about doing this in a day trading manner on something like Tesla, SPY, etc? Do a strangle at start of day close the losing side and let the winning side run or just see where it's at end of day?

[walterclark]

Awesome! Thanks for continuing to pump more information to educate everyone.

[nijatrzayev]

Thanks Jake to make this video. I have question lets say today 28/06/24 SPY rose to 550 and then all the way down to around 544, If the strike price would around 547, does it mean it could be possible to make profit in both side with straddle strategy? once it hit 550 sell call and then wait once it went down to 544 sell put option to make profit from both direction, is it possible with that strategy? never done, want to learn and apply.

[danieldellinger]

Very well explained. Will be checking out your other videos.

[MrNetsecure]

What would be the ideal expiry date for buying long straddle options? Is it just after the earnings or something much further in future after earnings

[kamran]

These are positive vega strategies. Even if the underlying doesn't move, you'll still make money from IV expansion. However, it is still difficult to guess which stocks will move prior to earnings. Use long vol leading up to earnings, then short vol for the crush. Great video.

[amarctg]

Amar Das
1 second ago
It is the best video found in YouTube on long straddle, strangle. Very useful insight on the strategy, Specially in the wake of recent significant price movement of FAANG stocks after earnings, fed interest hike looming large, huge ongoing acquisitions etc.Thanks Jake taking onus of educating the mass.

[KiranRavuri]

Good work ! Clean precise explanation 👌

[VillonJr.]

Love the video, got confused by the Apple stock price? You must have made the video a month ago? Unless I took a nap and apple dropped to 149 at the time of doing the video today? But you got the long call on Apple in your account and I live that call so you must have done it a month ago?

[pazpazim]

Hi. You are releasing great videos. Why did you stop?
As for the strategies, when do you buy the CALL and PUT? Is it a day before the earnings?

[gregchan]

If you currently holding a stock short, can you sell a put to achieve same idea as a covered call?

[vivianembro]

Good points. I trade straddles and strangles often, when they work they are great, but....when they don't holy cow! Needless to say I am looking for a new strategy.

[sycas]

Hi Jake, what happens if I didn’t close my strangle options? And it was expired without execution my put or call options?
Thank you