Long Strangle
A long strangle is a position that is a neutral strategy that profits when the stock stays between the long strikes as time passes, as well as any decreases in implied volatility. The long strangle is an undefined risk option strategy.
Directional Assumption: Neutral
Setup:
- Buy OTM Call
- Buy OTM Put
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract total credit from short put
- Upside: Add total credit to short call
Short Strangle
A short strangle is a position that is a neutral strategy that profits when the stock stays between the short strikes as time passes, as well as any decreases in implied volatility. The short strangle is an undefined risk option strategy.
Directional Assumption: Neutral
Setup:
- Sell OTM Call
- Sell OTM Put
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract total credit from short put
- Upside: Add total credit to short call
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