Long & Short Strangle Options Strategy: In-Depth-Guide

If you understand my Long Straddle & Short Straddle strategy then you will easily understand this Long Strangle & Short Strangle options strategy. This strategies are also deploy in similar situations like straddle. Only the strike prices are different.
Long strangle options strategy is a popular strategy among the amateurs, I have seen many people to simply deploy long strangle randomly almost in every expiry, and ended up with a huge loss at the end of the financial year.
Before I continue to explain the mechanism of a long strangle, I want to make it clear that options trading in very complicated and involves highest risk among all other trading and investment instrument. It required good knowledge of understanding of its mechanics and need to time the trade properly. 
Random application of long strangle is another financial dome of death for the traders like all other amateur use of options strategies.

Long Strangle
Short Strangle

Buy Same distance OTM call & Put Options of Same Qty, Underlying and Expiry

Short Same Distance OTM call & Put Option of Same Qty, Underlying and Expiry

Long Strangle:

The Long Strangle Options Strategy is a neutral options trading strategy used by investors who believe that the underlying asset will experience significant volatility in either direction, but are unsure about the direction of the price movement.
The strategy involves purchasing both a call option and a put option with the same underlying ,expiration date but different strike prices.
Mainly the strategy deploy before any big event like Budget, Election Result, Company Result etc. The Strategy is similar to Long Straddle, like buying call and put at the same time, the only difference is, in Straddle, both call and put options are ATM Option, in Long Strangle, we buy OTM call and OTM put options to minimize the time value decay risk.

Long Strangle

Mechanism:
Long OTM call options 
Long OTM put options
Same underlying, same expiry, same quantity and same distance from the ATM options

How It Works:
If the underlying move up faster, we will gain profit from long OTM call options and at the same time we will lose from OTM put options, if the movement is faster then we gain faster than we lose. Similarly, if the underlying fall faster then, we will gain profit from OTM put options and at the same time we will lose money from long call options. If the rise or fall become slower (Less volatility) in that case we will lose money both from long call and put options. So we can say, higher volatility should be the primary condition of a long strangle options strategy.

Maximum Profit= Undefined ( Either side big movement can give us unlimited profit theoritically, practically I have seen only 3 times in my 21 years of experience, first time I have seen in Jan 2009 when Satyam Computer scam revealed, secondly I saw when Yes Bank scam comeout and lastly I have seen in when Hindenburg report released about Adani Group)

Maximum Loss= Net premium paid

Upper-side Breakeven Price= Stirke Price Of Long Call Options + Net Premium Paid
Down-side Breakeven Price= Strike Price Of Long Put Options - Net Premium Paid

Example:
Assume The NIFTY spot trading at 24530. So 24550 is the ATM strike price, both for call and put options.
We purchased 24700CE which is 150 points higher than the ATM strike so we shall purchase 150 points lower strike put options than the ATM, so we have bought 24400PE.

Long Nifty 24700CE at 82.00
Long Nifty 24400PE at 86.00
---------------------------------------------------------
Net premium paid = 168.00

If nifty rises we will lose from the put options and vise versa.
Upper side breakeven = 24700 + 168
                                        = 24868
Down side breakeven = 24400 -168
                                       = 24232

It means, if Nifty expire anywhere between 24232 - 24868 we will lose money. To get profit Nifty must go above 24868 or must go below 24232 on expiry. Risk management of long strangle options trading strategy is most important. Before we deploy the long strangle we must ensure if there is any possibility that underlying can trade beyond the range.
Traders with good hold on technical analysis, sometimes make profit from sudden increase in volatility even from a long strangle. Let me give an exmple of profiting from volatility from both side. This is possible underlying moving like a pendulum, I, myself did one, on last 4th June 2024 it was the general election result day.
Assume we have a long strangle strategy open position. Suddenly the underlying moves up faster and approach the supply, what we can do, is, we can book profit from long call options, if the valatility to too much same cases call options premium may rise more than double, professionals use this, first exit with breakeven. Then if the underlying respect the supply and come down we will able to attribute at least some amount of time value from the put options that will be our profit. Even some cases the put options we may sell at a profit. Opposite is also possible.
This requires excellent grip on technical analysis and good knowledge about options and the knowledge to decode the market language.

Conclutions:
Long strangle we can deploy only when big event is awaiting before expiry and good knowledge of technical analysis and options are mandatory. Deploying long strangle strategy randomly will finish a trader's economical health.

Short Strangle:

The Short Strangle is an options trading strategy that involves selling both a call option and a put option with the same expiration date but different strike prices on the same underlying asset. This strategy is used when an investor expects the underlying asset to have low volatility and stay within a certain price range until the options expire.
This is more professional strategy than long strangle, the goal is to eat the premium (time value decay) due to low volatility near the expiry.
In my Short Straddle explanation I mentioned that before any big event or near to expiry short straddle is very dangerous as the Gamma of the options impact on option's delta and can move to unreasonable extremes and it could be instantanious, but in case of short strangle near to expiry is a good choice of timing.  

short strangle

Mechanics:
Short OTM call and put options of the same underlying, same expiry, same quantity and same distance from the ATM strike price.

Components of the Short Strangle

Sell a Call Option: This obligates the seller to sell the underlying asset at a specified higher strike price if the buyer exercises the option.

Sell a Put Option: This obligates the seller to buy the underlying asset at a specified lower strike price if the buyer exercises the option.

Key Characteristics

Strike Prices: The call option has a higher strike price, and the put option has a lower strike price.

Expiration Date: Both options have the same expiration date.

Premiums: The total income from the strategy is the sum of the premiums received from selling both options.

Maximum Profit = Net premium received for the writing both the options.

Maximum Loss = The potential loss is theoretically unlimited on the upside if the stock price rises significantly above the higher strike price, and substantial on the downside if the stock price falls significantly below the lower strike price.

Upperside Breakeven Point = Strike Price Of Sold Call Options + Premium Received

Lower Side Breakeven Point = Strike Price Of Sold Put Options - Premium Received

Example:
Assume The Nifty is Trading at 24530, so 24550 is the ATM Strike price.
Now we analyze that Nifty has a supply around 24800 and a demand is available around 24300, and the options will expire within 2/3 days (The less time remaining to expire, the better the timing for short strangle)
24800CE is trading at 55 where 24300PE is trading at 52 and we need to sell both the options.
Short 24800CE at 55
Short 24300PE at 52
---------------------------------
Net premium received = 107

We are expecting Nifty will be range bound. lets calculate the range we need to make profit.
If Nifty move up then we will lose money from put options and gain from call options, but we have to gain equal amount of total premium paid from the call options only. And If Nifty goes down then we will lose from call options and gain from put options, in that case the entire premium we have paid, we have to gain from put options. So the calculation will be like below ...

Upper side breakeven point = 24800 + 107
                                                   = 24907
Lower side breakeven point = 24300 - 107
                                                  = 24193
It means if Nifty closes anywhere in between 24193 to 24970 we wont lose money. It is a big range for Nifty for 2/3 days if there is no big event. Even if the options premiums are low like 20/- or 30/- still short straddle is beneficial for traders if get the opportunity when expiry remaining 2/3 days only. We will lose money if Nifty expire above 24970 or below 24193. Remember the calculation based on expiry. Before expiry if the Nifty trade above upper side breakeven point or below lower side breakeven point then we may not keep patience and have to book more loss than predetermind.

I personally check the two demand supply and select the strike of next demand supply.
For example assume I found current expiry is only 3 days remaining. Nifty trading at 24530
Nearest demand around 24400, next demand is around 24300, so I will sell Nifty 24300PE
I found Nearest supply is around 24720, and next supply around 24830 So I will short Nifty 24850CE
In the above example, I have not choose same distance strike price from the ATM. Mean we can chose our strike price as per demand supply and market sentiment.

Selecting Symmetric Strike Prices (Equal Distance from ATM) and Asymmetric Strike Prices (Different Distances from ATM) both has its own advantages. 

Advantages of Symmetric Strike Prices (Equal Distance from ATM):

Balanced Risk-Reward Profile: By choosing strike prices equidistant from the ATM price, the potential risk and reward on both sides of the position are more balanced.

Simplified Analysis: It simplifies the analysis and management of the position, as the potential profit and loss scenarios are easier to visualize and calculate.

Consistency: Provides a straightforward approach for determining break-even points and overall strategy performance.

Advantage of Asymmetric Strike Prices (Different Distances from ATM):

Customizable Risk-Reward: Allows us to customize the risk-reward profile based on our market outlook. For example, if we believe there is a higher likelihood of the price moving up rather than down, we may choose a higher call strike price and a closer put strike price.

Market Sentiment: We can adjust the strike prices based on our sentiment and analysis of the underlying asset’s potential movement.

Flexibility: Provides flexibility to accommodate specific trading goals and risk tolerance levels.

Hope this knowledge will enrich your options trading strategy skills.

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Link For Options Terminology and Other Options Strategies

Options Terminology
Long, Short & Protective Call
Long, Short & Protective Put
Debit Spread
Credit Spread
Straddle
Butterfly Spread
Iron Condor

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