Strangle
A strangle is an options strategy that involves buying both a call and a put option on the same underlying asset with different strike prices and the same expiration date. The strategy is designed to benefit from a large move in either direction, but the maximum profit potential is limited. The maximum loss potential is also limited, but it is greater than the maximum profit potential. Strangles are typically used when the investor expects a large move in the underlying asset but is unsure of the direction of the move.
History of the Term
The term “strangle” was first used in the early 1970s when options trading began to become popular. It was used to describe a strategy that involved buying both a call and a put option on the same underlying asset with different strike prices and the same expiration date. The strategy was designed to benefit from a large move in either direction, but the maximum profit potential was limited. The maximum loss potential was also limited, but it was greater than the maximum profit potential.
Comparison Table
| Strategy | Maximum Profit | Maximum Loss |
|---|---|---|
| Strangle | Limited | Limited, but greater than maximum profit |
Summary
A strangle is an options strategy that involves buying both a call and a put option on the same underlying asset with different strike prices and the same expiration date. The strategy is designed to benefit from a large move in either direction, but the maximum profit potential is limited. The maximum loss potential is also limited, but it is greater than the maximum profit potential. For more information on strangles, investors can visit websites such as Investopedia, The Options Industry Council, and The Motley Fool.
See Also
- Straddle
- Butterfly Spread
- Iron Condor
- Collar
- Long Call
- Short Call
- Long Put
- Short Put
- Covered Call
- Protective Put
