# Long strangle query ... buy equal lots of put & call? or with Equal amount?

Greetings!

I have one question, sooner you answer better it is, i want to know about long strangles,

suppose, one has to do long nifty strangles which are OTM, and put price is 20 and call price 4, so still one should go buy equal no. of lots ? or divide amount in 2 and allocate for puts & calls equally? or use counter-proportionality…like 1/5th amt for put - 20 rs and remaining 4/5th amt. for 4rs call?

My time horizon - till expiry
and risk – its fine both of them expire worthless

It should be delta neutral. So Delta x Amount should be equal.

Thanks for being so Quick abbanerjee! Its my 1st question ever asked…still little confused…yeah strategy is delta neutral…so…should one divide his capital in two parts …and half of it goes to buy put 18rs & other half for calls 4 rs?

Which OTM options do you intend to buy?

deep OTM options, 8-14 strikes away…

If both the options have the same delta, then you can buy the same quantity. If they have different deltas, then you have to buy quantities in such a way that delta*qty cancel eachother out.

Thanks a lot @Srinivas Anna! I understood completely now.

So, to confirm my calculation , i assumed two values 9800…put delta - 0.04, and 11200 call delta- 0.01, using https://zerodha.com/tools/black-scholes/ ,

so per u said- for 9800 put , 1000 lots puts x -0.04 = -400,

so to match that for calls, , -400= 0.01x quantity, then call quntity = 40000

Are my calculations correct?

What quantity do you intend to trade?

1000 lots, of nifty

Sir, 1000 lots of Nifty is 75000 qty. I assume you mean 1000qty(13 lots).

yess, sorry for confusion

Yes, in that case, if delta for 9800PE trading at 18 is 0.04 and if delta for 11200CE trading at 4 is 0.01, then for a delta neutral strategy, you must buy 13 lots of 9800PE and 52 lots of 11200CE.

975 * 0.04 = 3900 * 0.01

Also note that if Nifty falls between 9800 and 11200, then you lose your entire premium on both the options. If you are certain Nifty will have a big move in one particular direction, then you can trade a smaller qty of strikes that are closer to the price of Nifty.

Pls note that what you people are talking about is delta neutral strategy, its not strangle, pls note effect of vega along with delta …pls refer to varsity topic on strangle by Nitin sir. for more precise understanding…

@Srinivas,thanks for clarification.

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@goldb, yes, precisely, i read that article too, copying below for quick reference,

So, what is ur take on it?

Nifty is trading at 7921, to set up a strangle we need to buy OTM Call and Put options. Do note, both the options should belong to the same expiry and same underlying. Also the execution should happen in the same ratio (missed this point while discussing straddle).

Same ratio here means – one should buy the same number of call option as that of put option. For instance it can be 1:1 ratio meaning 1 lot of call, 1 lot of put option. Or it can be 5:5, meaning buy 5 lots of call and 5 lots of put option. Something like 2:3 is not considered strangle (or straddle) as in this case you would be buying 2 lots of call options and 3 lots of put options.

as per zerodha, article, one should buy equal puts & calls

xctly this is what i wanted to underline same lot same expiry and may be at same distance.

You can buy equal quantity of calls and puts only when they have the same delta. So you have to choose the options in such a way that they have the same delta, mostly equidistant strikes from spot.

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