Photo: Yan Krukau

Is a straddle or strangle better?

Key Takeaways Straddles are useful when it's unclear what direction the stock price might move in, so that way the investor is protected, regardless of the outcome. Strangles are useful when the investor thinks it's likely that the stock will move one way or the other but wants to be protected just in case.

investopedia.com - Straddle vs. a Strangle: Knowing the Difference - Investopedia

What is the lowest paying sport?

East Coast Hockey League (ECHL) rookies earn a minimum of $415 per week and veterans make $460 per week over the course of a 72-game regular...

Last updated Dec 7, 2021

How do I get my money back from a scammer?

Contact your bank immediately to let them know what's happened and ask if you can get a refund. Most banks should reimburse you if you've...

Last updated May 19, 2021

Make Your Bookie Cry And Pull The Hair By Generating $23,187

Promotion

Straddle vs. Strangle: An Overview

Straddles and strangles are both options strategies that allow an investor to benefit from significant moves in a stock's price, whether the stock moves up or down. Both approaches consist of buying an equal number of call and put options with the same expiration date. The difference is that the strangle has two different strike prices, while the straddle has a common strike price. Options are a type of derivative security, meaning the price of the options is intrinsically linked to the price of something else. If you buy an options contract you have the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a specific date. A call option gives an investor the right to buy stock, and a put option gives an investor the right to sell stock. The strike price of an option contract is the price at which an underlying stock can be bought or sold. The stock must rise above this price for calls or fall below for puts before a position can be exercised for a profit. Key Takeaways Straddles and strangles are options strategies investors use to benefit from significant moves in a stock's price, regardless of the direction. Straddles are useful when it's unclear what direction the stock price might move in, so that way the investor is protected, regardless of the outcome. Strangles are useful when the investor thinks it's likely that the stock will move one way or the other but wants to be protected just in case. Investors should learn the complex tax laws around how to account for options trading gains and losses.

Straddle

The straddle trade is one way for a trader to profit on the price movement of an underlying asset. Let's say a company is scheduled to release its latest earnings results in three weeks' time, but you have no idea whether the news will be good or bad. These weeks before the news release would be a good time to enter into a straddle because when the results are released, the stock is likely to move sharply higher or lower. Let's assume the stock is trading at $15 in the month of April. Suppose a $15 call option for June has a price of $2, while the price of the $15 put option for June is $1. A straddle is achieved by buying both the call and the put for a total of $300: ($2 + $1) x 100 shares per option contract = $300.

What car can hit 500 mph?

Speed Demon, the streamliner Duttweiler's “big engine” is destined for, is already the fastest car ever powered by an internal-combustion piston...

Last updated Dec 25, 2021

Which vitamin is good for eyes?

Vitamins A, C, and E and other nutrients like beta carotene, zinc, lutein, zeaxanthin, and omega-3 fatty acids are linked to a lower risk of...

Last updated Apr 2, 2022

Promotion

The straddle will increase in value if the stock moves higher (because of the long call option) or if the stock goes lower (because of the long put option). Profits will be realized as long as the price of the stock moves by more than $3 per share in either direction.

Strangle

Another approach to options is the strangle position. While a straddle has no directional bias, a strangle is used when the investor believes the stock has a better chance of moving in a certain direction, but would still like to be protected in the case of a negative move. For example, let's say you believe a company's results will be positive, meaning you require less downside protection. Instead of buying the put option with the strike price of $15 for $1, maybe you look at buying the $12.50 strike that has a price of $0.25. This trade would cost less than the straddle and also require less of an upward move for you to break even. Using the lower-strike put option in this strangle will still protect you against extreme downside, while also putting you in a better position to gain from a positive announcement.

1:22 4 Options Strategies To Know

Special Considerations

Understanding what taxes must be paid on options is always complicated, and any investor using these strategies needs to be familiar with the laws for reporting gains and losses. IRS Publication 550 provides an overview. In particular, investors will want to look at the guidance regarding "offsetting positions," which the government describes as a "position that substantially reduces any risk of loss you may have from holding another position.” At one point in time, some options traders would manipulate tax loopholes to delay paying capital gains taxes—a strategy no longer allowed. Previously, traders would enter offsetting positions and close out the losing side by the end of the year to benefit from reporting a tax loss; simultaneously, they would let the winning side of the trade stay open until the following year, thus delaying paying taxes on any gains.

Do I need a martingale?

Not all riders use a running martingale, but for those who can benefit from a little extra control over their horse, they are quite handy. They can...

Last updated Jun 10, 2019

Do you get real money from DraftKings?

Yes, DraftKings makes the withdrawal process simple by letting you withdraw funds at any time. Players can withdraw their funds with a check,...

Last updated May 22, 2019

Promotion

Because tax rules are complex, any investors dealing in options needs to work with tax professionals who understand the complicated laws in place. Current "loss deferral rules" in Publication 550 say that an individual can deduct a loss on a position only to the extent that the loss is more than any unrecognized gain the person has open on offsetting positions. Any "unused losses are treated as sustained in the next tax year.” There are more rules about offsetting positions, and they are complex, and at times, inconsistently applied. Options traders also need to consider the regulations for wash sale loss deferral, which would apply to traders who use straddles and strangles as well. Rules have been set up by the IRS to discourage investors from trying to take a tax deduction from a trade sold in a wash sale. A wash sale occurs when a person sells or trades at a loss and then, either 30 days before or after the sale, buys a "substantially identical" stock or security, or buys a contract or option to buy the stock or security. A wash sale also happens when an individual sells a holding, and then the spouse or a company run by the individual buys a "substantially identical" stock or security.

investopedia.com - Straddle vs. a Strangle: Knowing the Difference - Investopedia

Which player has the best goal ratio?

Legends like Iran's Ali Daei, who was the first football player to score 100 international goals, Ferenc Puskas of Hungary, who boasted an...

Last updated Aug 12, 2018

Why do fighters not touch gloves?

At the start of every fight, middleweight king Adesanya usually puts his hand on top of his opponent's fist instead of touching gloves. 'The Last...

Last updated Oct 17, 2019

Promotion

Do you ever split 10s?

Splitting a 10-10 hand is fine, but not a jack-queen hand, for example. After the first split, doubling down and further splitting of hands may be...

Last updated Apr 29, 2021

Promotion

What does +3 mean spread?

The point spread is the expected final score difference between two teams. It is represented as both a negative and positive number; if the spread...

Last updated Jan 22, 2019