STRANGLE STRATEGIES
Long Strangle (Buy OTM Call + Buy OTM Put)
Short Strangle involves the simultaneous buying of a slightly out-of-the-money (OTM) put and a slightly out-of-the-money (OTM) call of the same underlying and expiration date. Strangle strategies are suggested over straddle because strangle is low cost strategy.
Market Scenario: Neutral (Movement is Range Bound)
Risk: Limited to net premium paid
Reward: Unlimited
BEP: UPPER BEP: Call Strike + Net Premium
LOWER BEP: Put Strike – Net Premium
EXAMPLE:
Entry:
SPOT
|
5000
|
STRIKE
|
PREMIUM
|
|
BUY CALL
|
5100
|
50
|
BUY PUT
|
4900
|
40
|
UPPER BEP: 5100 + 90 = 5190 LOWER BEP: 4900 – 90 = 4810
On Exit
if:
SPOT
|
CALL PAY-OFF
|
PUT PAY-OFF
|
STRATEGY PAY-OFF
|
4700
|
-50
|
160
|
110
|
4800
|
-50
|
60
|
10
|
4810
|
-50
|
50
|
0
|
4900
|
-50
|
-40
|
-90
|
5000
|
-50
|
-40
|
-90
|
5100
|
-50
|
-40
|
-90
|
5190
|
40
|
-40
|
0
|
5200
|
50
|
-40
|
10
|
5300
|
150
|
-40
|
110
|
Long Strangle - Strategy Pay-Off
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