Motive of strategy.....
It is useful when big price change either side expected.
Here, difference is from long straddle is only buying call with a higher strike price and one put with a lower strike price.
Example, Tata motor trading at 150 Rs.
Buying call of 160 strike
Buying put of 140 strike
While in straddle buy of call and put with same strike of 150
Advantages.....
Option holder can stand till expiry date due to less premium paid compare to straddle.
One big move either side can give enough profit to cover total premium paid.
It is useful when movement is expected but direction not decided. Like result , merger and acquisitions and such event.
Maximum risk.....
Risk up to premium paid for 160 call and 140 put premium of Tata motor.
Maximum gain.....
Gain is unlimited above 160 plus premium paid
Gain is possible below 140 minus premium paid
Example,
If Tata motor expiry came at 175 and premium for 160 call paid rs. 4 and 140 put rs. 3
Profit at 175 rs expiry
160 plus 7 rs premium paid is equal to 167.
175-167 = 8 rs. Is gain.
If Tata motor expiry at 120 rs.
Then 140 put minus premium paid.
140 rs - 7 rs
Net pay off for put = strike price less current price
133 rs- 120 rs
Is equal to 13 rs.
Short strangle is selling call of higher strike and selling put of lower strike of underlying price.
In above example Tata motor trading at 150 rs.
Selling call of 160 strike @ 4 rs. And selling put of 140 @ 3 rs.
Here, stock should move in range. As time expire premium use to depreciate
This short strategy Is useful in low beta stock like ntpc, powergrid, ITC etc.
Maximum profit.....
Maximum gain possible in this position is rs. 7 premium sold.
Maximum risk.....
Upside risk is unlimited above rs. 167
Downside risk up to zero from rs. 133
Use of strategy.....
One can use this strategy in weekly nifty option where premium use to depreciate soon.
During this period one can take long strangle due to political uncertainty and terrific movement at border. So, uncertainty is huge one can initiate long position in index.
Will share more in detail when short strategy move opposite. Let complete theory part of all strategy.
Happy weekend
Derivativelearn
It is useful when big price change either side expected.
Here, difference is from long straddle is only buying call with a higher strike price and one put with a lower strike price.
Example, Tata motor trading at 150 Rs.
Buying call of 160 strike
Buying put of 140 strike
While in straddle buy of call and put with same strike of 150
Advantages.....
Option holder can stand till expiry date due to less premium paid compare to straddle.
One big move either side can give enough profit to cover total premium paid.
It is useful when movement is expected but direction not decided. Like result , merger and acquisitions and such event.
Maximum risk.....
Risk up to premium paid for 160 call and 140 put premium of Tata motor.
Maximum gain.....
Gain is unlimited above 160 plus premium paid
Gain is possible below 140 minus premium paid
Example,
If Tata motor expiry came at 175 and premium for 160 call paid rs. 4 and 140 put rs. 3
Profit at 175 rs expiry
160 plus 7 rs premium paid is equal to 167.
175-167 = 8 rs. Is gain.
If Tata motor expiry at 120 rs.
Then 140 put minus premium paid.
140 rs - 7 rs
Net pay off for put = strike price less current price
133 rs- 120 rs
Is equal to 13 rs.
Short strangle is selling call of higher strike and selling put of lower strike of underlying price.
In above example Tata motor trading at 150 rs.
Selling call of 160 strike @ 4 rs. And selling put of 140 @ 3 rs.
Here, stock should move in range. As time expire premium use to depreciate
This short strategy Is useful in low beta stock like ntpc, powergrid, ITC etc.
Maximum profit.....
Maximum gain possible in this position is rs. 7 premium sold.
Maximum risk.....
Upside risk is unlimited above rs. 167
Downside risk up to zero from rs. 133
Use of strategy.....
One can use this strategy in weekly nifty option where premium use to depreciate soon.
During this period one can take long strangle due to political uncertainty and terrific movement at border. So, uncertainty is huge one can initiate long position in index.
Will share more in detail when short strategy move opposite. Let complete theory part of all strategy.
Happy weekend
Derivativelearn
0 Comments