Strangle (options)
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In finance, a strangle is an investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit based on how much the price of the underlying security moves, with relatively minimal exposure to the direction of price movement. It is related to a similar option strategy known as a straddle.
[edit] Long strangle
The long strangle is a neutral-outlook options trading strategy that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying security and expiration date. It is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the price of the underlying security will experience high volatility in the near term. The long strangle is a debit spread as a net debit is taken to enter the trade.
[edit] Short strangle
The short strangle is a neutral-outlook options trading strategy that involves the simultaneous selling of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying security and expiration date. It is a limited profit, unlimited risk strategy that is taken when the options trader thinks that the underlying stock will experience little volatility in the near term. The short strangle is a credit spread as a net credit is taken to enter the trade.
[edit] References
- McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8.
Derivatives market | |
|---|---|
| Derivative (finance) | |
| Options | Terms:
Strike price ·
Expiration ·
Open interest ·
Pin risk
Vanilla options:
Option styles ·
Call ·
Put ·
Warrants ·
Fixed income ·
Employee stock option ·
FX
Exotic options:
Asian ·
Lookback ·
Barrier ·
Binary ·
Swaption ·
Mountain range
Options strategies:
Covered call ·
Naked put ·
Collar ·
Straddle ·
Strangle ·
Butterfly
Options spreads:
Bull spread ·
Bear spread ·
Calendar spread ·
Vertical spread ·
Debit spread ·
Credit spread
Valuation of options: Moneyness · Option time value · Put-call parity · Black-Scholes · Black · Binomial · Simulation |
| Swaps | |
| Other derivatives | |
