NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

Straddles and Strangles for NISM Equity Derivatives

Updated 11 October 2026 · Fact-checked

A straddle combines a call and a put at the same strike and expiry. A strangle combines an out-of-the-money call and put at different strikes. Long versions profit from big moves in either direction; short versions profit from calm markets. Find breakevens by adding and subtracting the total premium.

Understand Straddles and Strangles

A straddle and a strangle are volatility strategies. You are not betting on direction. You are betting on how far the price will move.

A long straddle means buying a call and a put on the same underlying, with the same strike and the same expiry. You pay two premiums. If the price moves far enough in either direction, one option gains more than the total premium you paid. If the price stays near the strike, both options lose value and you lose money.

A long strangle is similar, but you buy an out-of-the-money (OTM) call with a higher strike and an OTM put with a lower strike. Both premiums are smaller, so the cost is lower. But the price must move further before you profit.

The short straddle and short strangle are the opposites. You sell both options and collect the premium. You earn the most if the price ends near the strike (or between the two strikes in a strangle). Your loss is unlimited on the upside and very large on the downside, because the price cannot fall below zero.

Think of it this way: long = you pay premium, risk is limited, profit is large if the move is big. Short = you receive premium, profit is limited, risk is large.

Key formulas to remember

Long straddle: total premium: Total premium = Call premium + Put premium; This is the maximum loss of a long straddle. It happens when the price at expiry equals the strike.
Straddle breakevens: Upper breakeven = Strike + Total premium; Lower breakeven = Strike − Total premium; Same two formulas apply to long and short straddles.
Strangle breakevens: Upper breakeven = Call strike + Total premium; Lower breakeven = Put strike − Total premium; Total premium is the sum of the call and put premiums. Use the call strike for the upper point and the put strike for the lower point.
Long straddle / strangle payoff: Maximum loss = Total premium paid; Maximum profit = Unlimited on the upside, large (limited only by the price falling to zero) on the downside; For a long strangle, maximum loss occurs when expiry price lies between the two strikes (inclusive).
Short straddle / strangle payoff: Maximum profit = Total premium received; Maximum loss = Unlimited on the upside, large on the downside; For a short straddle, maximum profit occurs at expiry price equal to the strike. For a short strangle, it occurs anywhere between the two strikes.
Profit at expiry (long straddle): Profit per unit = |Expiry price − Strike| − Total premium; Multiply by the lot size for the total rupee result.

How to solve Straddles and Strangles questions

Use this method for any straddle or strangle question, whether it asks for breakeven, maximum profit or loss, or the result at a given price.

1Identify the strategy: same strike for call and put means straddle; different strikes (OTM call and OTM put) means strangle.
2Identify the position: buying both options is long; selling both is short.
3Add the two premiums to get the total premium. Check whether it is paid (long) or received (short).
4Calculate the breakevens: upper = call strike + total premium; lower = put strike − total premium. For a straddle both strikes are the same.
5State the maximum profit and loss from the position: long has loss limited to total premium; short has profit limited to total premium.
6If a final price is given, find the intrinsic value of each option at that price (call: price − strike if positive; put: strike − price if positive) and add them.
7Subtract the total premium from the combined intrinsic value for a long position. Reverse the sign for a short position.
8Multiply by the lot size only if the question asks for the total in rupees.

Quickest way: Premium-and-breakeven shortcut

When to use it: Use this when the question gives strikes and premiums and asks for breakeven, maximum loss or maximum profit.

Add the two premiums once. Keep that number.
Upper breakeven = call strike + that number. Lower breakeven = put strike − that number.
Long: maximum loss = that number. Short: maximum profit = that number.
Check the answer options for the trap: using only one premium, or using a wrong strike.
For a result at a given price, only one leg is in the money. Work out that leg and subtract the total premium.

Common mistakes in Straddles and Strangles

Using only one premium when calculating breakevens.
Students think each option has its own breakeven, as in a single call or put.
Fix: The strategy has one combined cost. Always add the call and put premiums before adding to or subtracting from the strike.
Adding the total premium to the put strike for the upper breakeven in a strangle.
Students mix up which strike belongs to which side.
Fix: Upper breakeven uses the call strike. Lower breakeven uses the put strike.
Saying a long straddle makes money when the market is quiet.
Students confuse long and short positions.
Fix: Long straddle needs a big move in either direction. Short straddle wants a quiet market.
Stating that a short straddle has limited loss.
Students remember that profit is limited and assume risk is too.
Fix: Short straddle and short strangle have limited profit (premium received) but very large loss, unlimited on the upside.
Thinking a strangle is always better than a straddle because it is cheaper.
Lower premium looks attractive.
Fix: A long strangle costs less but needs a bigger move to break even. A long straddle costs more but breaks even sooner.
Forgetting that a long straddle also has a loss zone around the strike.
Students focus on the unlimited profit side.
Fix: Between the two breakevens the position loses money. The loss is largest at the strike (straddle).

Worked examples

Example 1

A trader buys a Nifty straddle: one 22,000 call at ₹150 and one 22,000 put at ₹110. Find the breakeven points and the maximum loss per unit.

Show the solution

Total premium = 150 + 110 = ₹260.
Upper breakeven = 22,000 + 260 = 22,260.
Lower breakeven = 22,000 − 260 = 21,740.
Maximum loss = total premium paid = ₹260 per unit, when Nifty expires at 22,000.

Answer: Breakevens are 22,260 and 21,740. Maximum loss is ₹260 per unit.

Example 2

A trader sells a strangle on a stock: a 520 call at ₹12 and a 480 put at ₹8. Find the maximum profit, the breakevens, and the profit or loss per unit if the stock expires at 540.

Show the solution

Total premium received = 12 + 8 = ₹20. This is the maximum profit, earned if the stock expires between 480 and 520.
Upper breakeven = call strike + total premium = 520 + 20 = 540.
Lower breakeven = put strike − total premium = 480 − 20 = 460.
At expiry 540: the call is in the money by 540 − 520 = ₹20. The put expires worthless.
Result = premium received − call payout = 20 − 20 = ₹0 per unit, which matches the upper breakeven.

Answer: Maximum profit is ₹20 per unit. Breakevens are 460 and 540. At 540 the result is ₹0 per unit.

Exam tips

Read whether the question says long or short and straddle or strangle before touching any numbers. Most wrong answers come from a mismatch here.
Expect conceptual MCQs: which strategy suits a view of high volatility, which has unlimited loss, which needs the larger move. Learn the long/short table by heart.
In strangle breakeven questions, match the call strike to the upper point and the put strike to the lower point.
Check whether the answer asks per unit or per lot. Where negative marking applies (it does in NISM-Series-VIII, at 25% of the marks of the question), skip a calculation you cannot finish rather than guess.

Practice questions from Strategies using Equity Futures and Equity Options

Straddles and Strangles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Straddles and Strangles: frequently asked questions

What is the difference between a long straddle and a long strangle?

A long straddle buys a call and a put at the same strike. A long strangle buys an OTM call and an OTM put at different strikes. The strangle costs less but needs a bigger price move to profit.

How do I calculate straddle breakeven points?

Add the call and put premiums to get the total premium. Upper breakeven is the strike plus the total premium. Lower breakeven is the strike minus the total premium.

What is the maximum profit and risk of a short straddle?

Maximum profit is the total premium received, earned if the price expires at the strike. Risk is very large: unlimited if the price rises, and large if it falls.

When would a trader use a long straddle?

A trader uses it when expecting a large move but not sure of the direction, for example around a major event. The risk is limited to the premium paid.