Tuesday, 9 April 2013

STRANGLE STRATEGY:CASH TIME

A short strangle gives  the obligation to buy the stock at strike price A and the obligation to sell the stock at strike price B if the options are assigned. You are predicting the stock price will remain somewhere between strike A and strike B, and the options you sell will expire worthless.
By selling two options, significantly increase the income you would have achieved from selling a put or a call alone. But that comes at a cost. There is  unlimited risk on the upside and substantial down. This strategy is only for the most advanced traders who like to live dangerously .
There are two break-even points:
·         Strike A minus the net credit received.
·         Strike B plus the net credit received.
PROFITS AND LOSSES IN THE STRATEGY:....


1.   If  the stock at or between strikes A and B at expiration, so the options expire worthless.
2.   Potential profit is limited to the net credit received.
3.   If the stock goes up, the losses could be theoretically unlimited.
4.   For this strategy, time decay is the  best friend. It works doubly in your favor, eroding the price of         both options you sold. That means if you choose to close your position prior to expiration, it will be less expensive to buy it back.
5.   After the strategy is established, you really want implied volatility to decrease. An increase in implied volatility is dangerous because it works doubly against you by increasing the price of both options you sold. 

11 comments:

  1. Fantastic article, well written and extremely useful, thanks. This information is great to me. Thank you guys for your awesome posts

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  2. It’s very nice to read this article. This is extremely helpful for me and hope for every one too. in indian stock market, futures and options

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  3. Thanks for share this informative blog..... I agree with you..regularly posting makes it very useful

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  4. Its really a nice blog about share markeet information, live charts helps to undersyand markt in a better way, thanks for sharing this information

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  5. I read your post. That was amazing. Your thought processing is wonderful. The way you tell the thing is awesome. They are inspiring and helpful. Thank you

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  6. Thanks for the helpful post. In two weeks we are planning to start trade.i will book mark your blog

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    1. Check nifty.thanks sir forbthe appreciation

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  7. Fabulous ideas! One can Have a safe trade i m waiting for next article to read

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  8. Great tips nishita .! I hope you have a good trade and option strategy..waiting to watch the next...

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  9. The post you shared is very informative. I admire your work. Wish you all the luck for all your blogging efforts

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  10. A very informative article. Thank you for sharing your knowledge.

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