Strangle Options Trading Strategy
Strangles trading is one of the popular multi-legged options trading strategies practiced by option traders to profit from the movements of underlying product price in either direction. Like straddle trading strategy, strangles are also performed when the trader is sure about the price movement but unsure about the direction of movement. The main difference between straddle and strangle is that strangle trading involves purchasing out-of-the-money call and put options.
Strangle options trading strategy is performed for call and put options for same underlying product, stocks or commodity, with same expiration date but with different strike prices. The trader exercises the put option when the price of the underlying instrument falls considerably from the range and exercises call option when price rises considerably from the range. But if the price remains within the range, both options expire without exercise and the trader loss the option premium he paid.
Long strangles strategy is practiced when greater movement of price is expected and short strangles is when lesser short-term movements are expected. The main advantage of strangle is less expensive than straddle as options are out-of-the-money. It offers an unlimited profit making chance with limited risk, the option premium. Traders can also reduce their loss by selling unprofitable option once they are realize the market will not move as they thought.
Strangle options trading strategy is performed for call and put options for same underlying product, stocks or commodity, with same expiration date but with different strike prices. The trader exercises the put option when the price of the underlying instrument falls considerably from the range and exercises call option when price rises considerably from the range. But if the price remains within the range, both options expire without exercise and the trader loss the option premium he paid.
Long strangles strategy is practiced when greater movement of price is expected and short strangles is when lesser short-term movements are expected. The main advantage of strangle is less expensive than straddle as options are out-of-the-money. It offers an unlimited profit making chance with limited risk, the option premium. Traders can also reduce their loss by selling unprofitable option once they are realize the market will not move as they thought.
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