The Best 10 Option Trading Strategies

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4. Strangle

Strangle is quite similar to straddle. The difference is that strangle is established by buying out of the money call and put option. Because both the options are out of the money option, therefore, both options have different strikes. The maximum loss of this strategy is less than the straddle strategy, but the difference between the upside and downside breakeven level is slightly higher than the straddle strategy. For this strategy, the upside breakeven is calculated by adding the total call and put option prices to the call option strike price. While the downside breakeven level is calculated by subtracting the put option strike price with the total call and put option prices.
The difference between the strike prices usually is about 2.50 or 5 depending on which stock you select to buy with this strategy. If the security price fluctuates within the upside and downside breakeven level, you still lose the money due to the loss of the option time value. The application of this strategy is the same as the straddle strategy.

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