Advantages of Bought Strangle

Posted on March 24th, 2010 admin
Advantages of Bought Strangle 5.00/5 (100.00%) 1 vote
  • It is possible to profit no matter if the share price goes up or down.
  • A strangle has a lower net debit than the bought straddle.
  • A higher profit in percentage terms than a straddle on the same move in the underlying stock, provided that breakeven point has been exceeded.
  • Since both options are out-of-the-money, time decay on the options is not as rapid as they are with the bought straddle.
  • Unlimited profit if the underlying asset continues to move in one direction.
  • Since the trade is non-directional your outlook can be wrong and still profit from this strategy.
  • The maximum loss is limited to the debit paid.
  • If volatility is low at the time of purchase and volatility rises, both options could profit even without an appreciable change in the stock price.
  • Smaller capital outlay to trade strangles than trading the underlying shares.

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