250percent.com - The Strangle Strategy

14: The Strangle Strategy

Strategy: Strangle

Opening the Trade: 1. "Buy to open" a put option on company X at a strike
                                         just below the current stock price
                                           and
                                    2. "Buy to open" a call option on company X at a strike
                                         just above the current stock price

Summary: This is called a Strangle. A Strangle is just like a Straddle, except you buy two different strike prices of options. Strangles are cheaper to open than straddles, but the stock has to move farther to make a profit.

example 1

Figure 1: 55/65 Strangle on XYZ

Example:

Buy 1 JAN 55 CALL on XYZ @ $2 7/8
Buy 1 JAN 65 PUT on XYZ @ $2 11/16

Net Cost to Open $556.25

$287.50
+ $268.75
= $556.25

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