Monday, 24 September 2012

DIFFERENCE between strangle and straddle strategies

Strangle and straddle are both option strategies which allow  investor to gain on significant moves either up or down the stock price. Both strategies consist of buying an equal number of call and put options with the same expiration date. In this post we attempt to explain difference between strangle and straddle strategies.
Difference between  straddle and  strangle
1)The strike price of the options, In a straddle, the options are bought with the same the same strike price in a strangle ,the options are bought with different strike price.
2)Strangle strategy needs a large movement in the market where as straddle covers the profit in less movement of the index also.
3)The costing of strangle strategy is more as compared to the straddle so are the chances of profit......
For example, let’s say a company is going to release its latest results in three weeks time, but you have no idea whether the news will be good or bad. This would be a good time to enter into a straddle, because when the results are released the stock is likely to be more sharply higher or lower. If the stock goes up in price the call will also rise in price, but the put will decrease in price. An important point in an investment position of this type is that the prices of put and call move in opposite directions. Therefore, the movement must be large enough for either the put or the call to dominate and create a profit. As one of the options approaches zero the other option will dominate and continue to increase in price.

4 comments:

  1. wow!!!!!!i easily understood this topic by this post.thanks

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  2. nice n interesting post.

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  3. the picture n difference between two stratigies got cleared by this post.thanks

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  4. fantastic article!

    ReplyDelete