Finance Terms

Strangle A strangle is a market-neutral options strategy used when a trader expects high volatility but isn't sure which way the price will swing. It’s the "budget-friendly" cousin of the straddle , designed to profit from explosive price movement. How it Works To execute a long strangle, you simultaneously buy two different options with the same expiration date but different strike prices : Out-of-the-Money (OTM) Call: Profit if the price skyrockets. Out-of-the-Money (OTM) Put: Profit if the price plunges. Because both options are OTM (the stock price sits between the two strikes), the "entry fee" or premium is lower than other volatility strategies. Example Scenario Stock Price: $100 The Trade: Buy a $105 Call and a $95 Put. The Goal: You need the stock to move significantly past $105 or $95 to offset the cost of both premiums. The Risk: If the stoc...

Straddle A straddle is an options trading strategy that involves buying or selling both a call option and a put option for the same stock, with the same strike price and expiration date. This strategy is used when a trader expects the stock to move significantly, but is not sure which direction it will go. Here’s how a long straddle works: the call option makes money if the stock price goes up. The put option makes money if the stock price goes down. If the stock moves sharply in either direction, one of the options can become very profitable. The goal is for the gain on one option to outweigh the cost of both. For example, imagine a company is about to announce earnings. You expect the stock to move a lot based on the news, but you don’t know whether the news will be good or bad. A long straddle lets you potentially profit either way, as long as the stock moves enough. However, if the stock price stays close to the strike price, both options could lose value. This is the m...