Long Strangle

Example Suppose Nifty is at 4500 in January. An investor, Mr. A, executes a Long Strangle by buying a Rs. 4300 Nifty Put for a premium of Rs. 23 and a Rs 4700 Nifty Call for Rs 43. The net debit taken to enter the trade is Rs. 66, which is also his maximum possible loss. Strategy : Buy OTM Put + Buy OTM Call
Nifty index Buy Call Option Mr. A pays Current Value Strike Price (Rs.) Premium (Rs.) Break Even Point (Rs.) Buy Put Option Mr. A pays Strike Price (Rs.) Premium (Rs.) Break Even Point (Rs.) 4500 4700 43 4743 4300 23 4277

The payoff schedule

On expiry Net Payoff from Nifty closes Put purchased at (Rs.) 3800 477 3900 377 4000 277 4100 177 4200 77 4277 0 4300 -23 4400 -23 4500 -23 4600 -23 4700 -23 4743 -23 4800 -23 4900 -23 5000 -23 5100 -23 5200 -23 Net Payoff from Call purchased (Rs.) -43 -43 -43 -43 -43 -43 -43 -43 -43 -43 -43 0 57 157 257 357 457 Net Payoff (Rs.)
434 334 234 134 34 -43 -66 -66 -66 -66 -66 -23 34 134 234 334 434

The payoff chart (Long Strangle)

Buy OTM Put

Buy OTM Call

Long Strangle