1. What it is
Long: buy a lower-strike put and a higher-strike call at the same expiration. Short: sell both. ABG's default is the short version.
2. Why use it
Move the call and put apart to change the cost and the required move.
3. How the numbers work
View example
- Buy 1 × Put · Strike 95
- Buy 1 × Call · Strike 105
All option legs have the same expiration.
- Option premium paid
- 4
- Expiration breakeven
- 91 / 109
- Maximum expiration profit
- Theoretically unlimited
- Maximum expiration loss
- 4
- Underlying at expiration 100 → Loss 4
- Underlying at expiration 110 → Profit 1
4. How it changes
A bought strangle has positive gamma and vega and usually negative theta. Compared with a similar straddle, farther strikes generally cost less but require a larger move to break even.
5. What to watch for
The long version risks the total premium. The short version's upside loss is unlimited and its downside loss can be substantial.
A wider profitable range for the seller does not cap tail losses. Farther-out strikes may also be less liquid.
Examples use illustrative entry prices and amounts per underlying unit, before costs. Contract amounts require the contract multiplier. Expiration payoffs assume the illustrated legs remain intact; earlier position values and exercise or assignment outcomes can differ.