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:....