Créer un site internet

Strangles

The holder of a strangle is long a call struck at K2 and long a put struck at K1 lower than K2. Both options have the same maturity T and are often out-of-the-money.

 

As is the case for straddles, strangles are combinations adapted to investors expecting volatility of the underlying stock to increase.

 

An investor would prefer to buy a strangle instead of a straddle if he believes there will be a large stock move by maturity, i.e. the investor is even more bullish on volatility. The investor would realize a better profit from this strategy since the premium is much lower than the one paid for a straddle.

 

Strangles also enable investors to trade in volatility. It is interesting to note that a strangle is less sensitive to volatility than a straddle. Indeed, the Vega of out-of-the-money options is lower than the Vega of at-the-money options. Then, the Vega of a strangle, which is the sum of the Vegas of the options composing the strategy, is lower than the Vega of a straddle. The holder of a strangle is obviously long volatility.

 

Add a comment

 

The NEW website is OUT! 

Go have a look at https://www.derivativesacademy.com.

You will find the content in the 'Derivatives Academy' section in a book format. 
The full content is not yet available as I am rewriting it and improving it.

You can try the Exotic Derivatives pricer under the 'Derivatives Pricer' section (
https://www.derivativesacademy.com/derivatives-pricer/). I will speed up the page soon as I forgot to compress some images.
Each application allows you to price differents products and contains links towards the correct section of the book. 
You will then be able to get practical and theoretical knowledge quite easily.

I teach quite often using the pricer. You can get so much information and answers to your questions thanks to it.

Take advantage of it as much as you can to hone your knowledge!

If you are looking for junior opportunities in the field of market finance. Register yourself on the website. It's free!

If you have any questions, do not hesitate to contact me on info@derivativesacademy.com.