Options Trading Mastery: Option Strangles
Topics: options trading, options trading strategies, stock options trading, stock trading1
The Strangle is another option strategy that features the use of options in unison with each other. The Strangle is philosophically identical to its ‘cousin’ the Straddle. However, whereas the Straddle has a single strike as its focal point, the Strangle has its focal point spread out over two strikes.
The effect of this as compared to the Straddle is that the Strangle will produce wider break-even points and lower prices. The widening of the break-even points changes the risk/reward scenarios for both the buyer and the seller of the Strangle as opposed to the Straddle.
The benefit to the buyer of the Strangle is that it will cost less than a Straddle (thus less risk) but, like all risk/reward scenarios, less risk equals less reward. The buyer’s trade-off for lower cost and less risk is that the stock will have to move significantly more than if the buyer had purchased a Straddle.
The benefit to the seller of the Strangle is that it offers a larger margin of error in terms of the anticipated stock movement. The wider range of the break-even prices allows the stock to have more movement while still allowing the seller to profit. The seller’s trade-off for this luxury is price. The seller will not bring in as much premium from the sale of a Strangle as opposed to the sale of a Straddle.
With that said, let’s look at the Strangle. The Strangle, like the Straddle, consists of two options. In the Strangle, however, the two options are not at-the-money options of the same strike (Straddle), but out-of-the-money options (both a call and a put) of different strikes.
The Strangle features one position (either long or short) and two options: an out-of-the-money call and an out-of-the-money put.
When you put together a Strangle the construction should be as follows:
- Different options (out-of-the-money call & an out-of-the-money put)
- Same stock
- Same expiration
- One to one ratio
Strangle positions are referred to as ‘long Strangle’ or ’short Strangle’ depending on whether you purchase the call and the put (long) or sell the call and the put (short).
For example, with the stock trading at $57.50, you would construct the long Strangle by purchasing both the July 60 call and the July 55 put. You would construct the short Strangle by selling both the July 60 call and the July 55 put.
It is important to note that the Strangle is a one to one ratio strategy. For every call that you buy (or sell), you must purchase (or sell) exactly one put to properly construct a Strangle.
Ron Ianieri is currently Chief Options Strategist at The Options University, an educational company that teaches investors how to make consistent profits using options while limiting risk. For more information please contact The Options University at www.optionsuniversity.com or 866-561-8227
Previous Articles Highlighter:
Presentation And Promotional Materials Build Your Brand Awareness (1)
Therefore you need to be especially efficient in the distribution of these for greater productivity, giving you added leverage over competing businesses. This may all sound like an uphill battle to you as the owner of a small business.
Small Business Blogs, Blogging And RSS (2)
Many blogs and the newer browsers also have RSS suggesting tools to help you find RSS feeds you may not have known where to search for but that are strongly related to your small business or have a high interest level to them.
An Overview On Above Ground Swimming Pools (3)
To enjoy the outdoors is a marvelous thing that cannot be denied no matter what one's budget may be. Mike Selvon portal offers free articles on swimming pools. Find out more about above ground swimming pools at swimmingpools.trustprofitableniche.com, and leave a comment at the blog at www.mynicheportal.com.
How To Select And Install A Home Well Water Chlorinator (4)
Let us say this figure is two minutes or 120 seconds. 6. Divide the number of gallons collected in Step 3 by the number of seconds in Step 5.
Choose Pepper Spray For Protection (5)
With pepper spray in your possession, keep the dangerous animal at bay while you safely run to your car or inside a nearby building. Pepper spray is made of an active ingredient called oleoresin capsicum, which is derived from cayenne peppers.
Using A Debt Settlement Company As A Bankruptcy Alternative (6)
The first is that it will impact your credit record negatively, but not as negatively as a bankruptcy. Once you are out of debt, you will be in a position to rebuild your credit.
A Visualization Of The Urban Legend Called, Man Made Global Warming (7)
That brings to mind the following famous quote: "Make the lie big, make it simple, keep saying it, and eventually they will believe it." - Adolph Hitler I will attempt to prove the absurdity of blaming man for the acceleration of Global Warming by first providing some basic botany facts and then a couple of visualizations which anyone can do at home.
Extraordinary, Mystical And Desired- Blacked Diamond Jewelry (8)
Promotion of this rare stone has also been a factor for the high price. Many jewelers in the market do not offer black diamonds, as it is rare and expensive.
The Killer Categories In The World Of PR (9)
The media loves timely news. The media loves children or animal news. The media loves David v Goliath news and The media loves new ideas. These 5 categories of stories are essential for you if you want to maximise your chance of getting your press release published.
Pepper Spray: Organic Weaponry? (10)
This is the same method for measuring the heat of peppers. The more advanced High Pressure Liquid Chromatography methods are also used linking digital measuring with this trusted SHU system.
Newer Articles Highlighter:
5 Tips To Make Your Caribbean Cruise A Success (1)
Knowing that your home and pets are in good hands will allow you to fully relax and enjoy your Caribbean cruise. Have a trusted neighbor or friend regularly check on your house, pick up mail and newspapers, and keep on eye on things.
The Advantages Of Flueless Gas Fires (2)
Not only is this annoying and pointless but it can also be a complete waste of money. With flueless gas fires there is no flue or chimney so the heat has no choice but to go in your home.
Applying Makeup During A Breakout (3)
Shave in small patches or use an electric razor if you must shave. Alternatively, wait to shave until after the outbreak is on the mend. If you're female, take care while applying cosmetics.
African Animal Safari - Our Two Top Safari Picks For 2008! (4)
bird watching will consume a good deal of your time. The best times to see African birdlife in all it's splendor is from October through to April. Birds migrating from other areas of the globe intermingle with the locals and this simply adds to the fascination.
9 Akita Training Tips (5)
Many short are more useful then 1 long one. Train when your akita is alert, because tired dogs or dogs which have just eaten don't do well. And the last one of akita training tips: avoid making repetitive commands.
Ski Season Or Knee Season? (6)
All of a sudden a loud CRACK! There goes the anterior cruciate ligament and there goes the rest of the holiday! My advice is this. If you want to enjoy the ski season book up for more than a week.
Make A Home Business Connection (7)
Getting the name of your home business out there is the connection you will need to make in order to be called in when there is a need! For example, think of a way that your notary business is different from the way the notary at the local law office does business.
The Thrill Of Snowboarding For Those Who Are Unfamiliar With The Sport (8)
So when you go to the icy slopes or wherever it is that you may go you need to wear protection so you don't become injured on your trip seeing as that can cause a short trip.
The Secret To Finding The Best Chainsaw Brand (9)
So how do you choose the best chainsaw brand? Well, Stihl and Husqvarna immediately spring to mind but if you're really serious about finding the best saw for your situation then you need to conduct your own research before jumping in on one recommendation.
The Chip And Run Shot (10)
It's a game that requires dedication, determination, and above all practice. In golf, practice helps build routine, which is necessary to establish power in your drive, through consistent iron play to finesse on the putting surface.