What is involved in creating a long strangle?

Creating a long strangle involves purchasing both a call option and a put option with different strike prices, typically where the call option has a higher strike price and the put option has a lower strike price. This strategy allows an investor to profit from significant movement in the price of the underlying asset, regardless of the direction of that movement.

The rationale behind this strategy is to profit from increased volatility. By having both options, the investor expects that the price of the underlying asset will move significantly either up or down. The lower strike put option gains value if the asset's price falls significantly, while the higher strike call option gains value if the asset's price rises significantly.

This strategy generally works best when the market is expected to be volatile. The potential for loss is limited to the premium paid for both options, but the potential for profit can be substantial if the underlying asset moves significantly in either direction.

Thus, the correct answer reflects the mechanics of establishing a long strangle position by correctly outlining the purchase of a high strike call and a low strike put.