A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the
This strategy is applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
Purchase Price of Underlying + Premium Paid
LONG STRANGLE Vs MARRIED PUT - When & How to use ?
LONG STRANGLE
MARRIED PUT
Market View
Neutral
Bullish
When to use?
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
This Strategy work when the investor goes long in any stock. He expects the rise in market in future.
Action
Buy OTM Call Option, Buy OTM Put Option
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
Purchase Price of Underlying + Premium Paid
LONG STRANGLE Vs MARRIED PUT - Risk & Reward
LONG STRANGLE
MARRIED PUT
Maximum Profit Scenario
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Max Loss = Net Premium Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG STRANGLE Vs MARRIED PUT - Strategy Pros & Cons
LONG STRANGLE
MARRIED PUT
Similar Strategies
Long Straddle, Short Strangle
Long Call
Disadvantage
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Cost of the put options eats into profit margin.
Advantages
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
