Best Option Strategies – Strangle option techniques.
Best Option Strategies – Strangle option techniques.
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Best Option Strategies – Strangle Option Technique
A Strangle is an options trading strategy used to profit from large price movements in a stock or index, regardless of direction. It involves buying or selling both a call and a put option with the same expiration date but different strike prices.
1. Long Strangle (Buying Strategy)
Best for: High volatility expectations (before earnings, news events, etc.)
How it works:
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Buy Out-of-the-Money (OTM) Call (higher strike price)
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Buy Out-of-the-Money (OTM) Put (lower strike price)
Profit: If the stock makes a big move in either direction
Loss: If the stock stays within a small range (loss limited to premium paid)
Example:
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Stock Price: $100
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Buy Call (Strike: $105, Premium: $2)
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Buy Put (Strike: $95, Premium: $2)
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Total Cost (Premium Paid): $4
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Profit if the stock moves above $109 or below $91 before expiry.
2. Short Strangle (Selling Strategy)
Best for: Low volatility expectations (range-bound stocks)
How it works:
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Sell OTM Call
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Sell OTM Put
Profit: If the stock remains within a range (you keep the premium)
Loss: If the stock makes a large move (unlimited risk)
Example:
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Stock Price: $100
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Sell Call (Strike: $110, Premium: $3)
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Sell Put (Strike: $90, Premium: $3)
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Total Credit (Premium Collected): $6
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Max Profit: $6 if the stock stays between $90 and $110.
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Unlimited loss if the stock moves too far in either direction.
When to Use a Strangle?
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Long Strangle → Expecting big movement (earnings, news, events).
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Short Strangle → Expecting little movement (sideways market).
Would you like a live example or more advanced strategies?