Mastering the Strangle and Straddle Option Strategies
Options Trading can appear intimidating to novice traders due to its complexity. However, mastering the two most common option strategies – the strangle and straddle strategies – is the first major step that successful traders need to take. Both these strategies require best practices when it comes to option price volatility, options hedging, and options risk management.
What is Options Trading?
Options trading is an investment strategy that allows traders to speculate on the future movement of an underlying asset. This activity takes place through the purchase and sale of call and put contracts, and traders may use options for either hedging an existing stock portfolio against downside risk, or for leveraging up an existing strategy for increased profit and loss potential.
What are Strangle and Straddle Strategies?
Strangle and Straddle Strategies represent two of the most popular forms of options trading strategies. A Strangle strategy involves the purchase of a higher strike call option and a lower strike put option, whereas a Straddle strategy involves the purchase of the same strike call and put options. The strategies may also be applied in reverse, to create a ‘short’ position, by selling the call and put options.
Strangle and Straddle Strategies – Pros and Cons
Compared to other options trading strategies, a Strangle and Straddle approach offer several advantages. Both these strategies can easily be executed in short timeframes and are especially beneficial when there is an expectation of an upcoming market move. Since both options will be executed simultaneously, the level of spreads is also lessened, which can result in relatively lower transaction costs compared to other strategies.
On the downside, the Strangle and Straddle Strategies require a greater degree of in-depth analysis and market trend analysis, given the volatility of the underlying assets. Due to their simultaneous nature, a wrong call in either direction can lead to significant losses. Moreover, unanticipated market events can also affect the strategy’s success.
MarketXLS: Making Option Strategies Easier.
MarketXLS is an advanced Excel-based Options Trading platform that simplifies analysis, risk management and execution of options trading strategies. The platform’s powerful features include automated volatility calculation and prediction for up to 5 years, options calculators for correctly pricing options and calculating fair value, and a user-customizable dashboard that provides easy access to a range of critical information. With MarketXLS, traders can quickly and easily execute the Strangle and Straddle Strategies with minimal risk and guesswork.
Here are some templates that you can use to create your own models
Search for all Templates here:
Relevant blogs that you can read to learn more about the topic
