10 basic options strategies

8. Strangle

Like a Straddle, a Strangle is a volatility play, but over a range of strike prices. A Strangle has many of the same characteristics as a Straddle, but by adding additional legs, it is able to put limits on risk.

Long Strangle: Long put A, Long call B; Long call A, Long put B

Use if a market is within or near A – B range and has been stagnant. If market moves in either direction, you make money with open-ended profit potential. If market continues to stagnate, then loss is limited to the cost of the position.

Short Strangle: Short put A, Short call B; Short call A, Short put B

Use if market is within or near A – B range and, though active, is quieting down. Maximum profit is found if the market stagnates and expires between A and B. Although less risky than a Straddle, potential loss still is open-ended.

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