5.Strategy4:Low-Cost Arbitrage in High Volatility—Practical Application of Strangle Options Strategy
Hello,
In the previous lesson, we learned about the basic concept of the straddle options strategy and how to implement it using an app. Today, we will introduce the fourth common portfolio strategy—strangle options strategy.
1. What is a strangle Options Strategy?
The strangle options strategy is quite similar to the straddle options strategy, with the key difference being that while the straddle strategy involves buying or selling both call and put options with the same expiration date and the same strike price, the strangle strategy involves buying or selling both call and put options with different strike prices but the same expiration date.
Compared to the straddle strategy, in the strangle strategy, the strike price of the call option is higher and the strike price of the put option is lower. This difference in strike prices results in a lower overall premium cost. If the view is prices will be very volatile then we would buy the strangle and if we anticipate that the stock will become less volatile we would sell the strangle.
The buying of a strangle strategy is suitable for scenarios where there is expected to be significant volatility in the future stock price. This could be during earnings seasons or the release of important economic data that could impact stock prices, and when it's difficult to predict whether the stock price will rise or fall.
Here's an example: Let's assume the current stock price of Apple is $187. We anticipate that after Apple releases its earnings report, there could be substantial price fluctuations, potentially beyond the range of $195 and $180. In this case, we can choose to buy call options with a strike price of $195 and put options with a strike price of $180, both expiring on the same date. The premiums for the call and put options are $0.04 and $0.07 respectively. The total premium cost for this strategy is $0.11.
If the future stock price rises above $195 or falls below $180, this strategy would yield a profit. Generally, the larger the price fluctuation, the greater the profit.
However, if the stock price remains within the range of $180 to $195, this strategy would not be profitable. Therefore, if you anticipate limited price volatility in the future, you can instead become a seller by implementing a short straddle options strategy. This involves selling the call and put options mentioned above, and the maximum profit would be the premium income of $0.11.
The biggest risk of this strategy is that if the stock price changes significantly, the potential loss is theoretically unlimited
2. How to Execute a strangle Options Strategy Using an App
In practical execution, you can directly use an app to match this strategy with a single click. The app can also calculate the potential profit and loss of the portfolio. Here's how to operate it:
Continuing with the example, if you want to execute a long strangle options strategy, start by tapping the strategy section at the bottom of the app and then selecting the strangle strategy. Click on the default settings, and adjust the price difference to 15 ($195 - $180). This will display all the option portfolios for different strike prices. Choose the desired strike price, then select "Buy." The app will automatically calculate the maximum profit, maximum loss, and profit-loss curve for this portfolio (note that all data in practical application is typically multiplied by 100 due to contract unit considerations, and it includes transaction costs like fees, leading to some deviation from theoretical values).
If you are planning to execute a short strangle options strategy, you only need to switch from "Buy" to "Sell" in the bottom right corner during the final step.
Okay, here we have finished the five lessons of the entire combined options small class. Through the study of these five lessons, we have understood the benefits of portfolio options strategies, and mastered the application scenarios and practical skills of 4 common strategies , I hope that everyone can better meet their income needs through portfolio investment strategies.
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This involves buying a call with a Higher Strike price and buying a Put with a Lower Strike price with the same expiration date.
With a Strangle Options Strategy, the expectation is that the stock price will swing above the call price or below the put price.
To set up a Strangle Option involves buying a Call Option that is higher than the current market price and Buying a Put Option that is lower than the current market price. Both are bought with the same expiration date but the strike prices are different.
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In the Strangle Strategy, the strike price is different. In a Straddle Strategy, the strike price is the same.
Thanks @Tiger_Academy for your important lesson on Strangle Strategy in Options Trading today. .
@Shyon @Universe宇宙 @Jadenkho @GoodLife99 @Fenger1188
This strategy is most effective when considering heavily volatile investments; without strong price movement, the premiums paid on multiple options may easily outweigh any potential profit.
与多空策略相比，在扼杀策略中，看涨期权期权的执行价格较高，看跌期权的执行价格较低。执行价格的这种差异导致整体保费成本降低。如果认为价格会非常不稳定，那么我们会买入扼杀股，如果我们预计股票会变得不那么不稳定，我们会卖出扼杀股。
购买扼杀策略适用于预计未来股价会有大幅波动的情况。这可能发生在收益季节或可能影响股价的重要经济数据发布期间，以及难以预测股价会上涨还是下跌的时候。