NumaWeb : STRATEGIES : BUY STRANGLE

OPTIONS STRATEGY GUIDE

Strategy - BUY STRANGLE (details below)

bullish
bearish
neutral
volatile
- expect prices to be very volatile
- expect prices to be volatile
- moderately expect prices to be volatile

BUY STRANGLE

Strategy View
Investor thinks that the market will be very volatile in the short-term [this is similar to the buy straddle but the premium paid here is less]

Strategy Implementation
Put option is bought with a strike a and a call option is bought with a strike b.

Upside Potential
Unlimited - should the market fall or rise greatly.

Downside Risk
Limited to the two premiums paid. [If the investor would like to reduce the premiums paid still further, a short butterfly might be interesting].

Margin
Not required

Comment
Position loses value with passage of time as time value decreases on options.

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