This strategy is implemented by buying 1 Put Option i.e. a single position, when the person is bearish on the market and expects the market to move downwards in the near future.
Risk: The maximum loss will be the premium amount paid.<
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG PUT Vs LONG STRANGLE - When & How to use ?
LONG PUT
LONG STRANGLE
Market View
Bearish
Neutral
When to use?
A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Buy Put Option
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
Strike Price of Long Put - Premium Paid
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG PUT Vs LONG STRANGLE - Risk & Reward
LONG PUT
LONG STRANGLE
Maximum Profit Scenario
Profit = Strike Price of Long Put - Premium Paid
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
Max Loss = Premium Paid + Commissions Paid
Max Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG PUT Vs LONG STRANGLE - Strategy Pros & Cons
LONG PUT
LONG STRANGLE
Similar Strategies
Protective Call, Short Put
Long Straddle, Short Strangle
Disadvantage
• 100% loss if strike price, expiration dates or underlying stocks are badly chosen. • Time decay.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Advantages
• Limited risk to the premium paid. • Less capital investment and more profit. • Unlimited profit potential with limited risk.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
