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Strangle
eitherwaysStrangle like Straddle is a volatility strategy that aims to make money either ways from a stock/index soaring up or plummeting down
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 21-Jul-26 24150 CE | 65 | 96.85 |
| BUY NIFTY 21-Jul-26 24050 PE | 65 | 112.5 |
When To Execute?
Outlook is Directional Neutral in Strangle; Ideal when you are looking forward for increasing volatility with stock price moving explosively in either direction
Trade
Buy 1 lot OTM Call and 1 lot OTM Put with same expiration. Expiry is at distant away to avoid exponential time decay that happens as expiration approaches.
Advantages
Being Directional Neutral, you can participate in either ways volatility jumps
Ideal to trade Strangle would be when you are expecting wider movement in stocks
Disadvantages
Time decay is harmful to Strangle as a time day accelerates exponentially in last week of expiry
As BEP in Strangle is wider. If stock fails to give desired move, one can lose the premium
Maximum Profit
Maximum Profit is unlimited beyond Lower BEP (Put Strike minus premium) or Higher BEP (Call Strike plus premium)
Maximum Loss
It is Net debit Strategy as you have bought both Call & Put; Maximum Loss is limited to total premium paid