straddle vs. strangle

Discussion in 'Options' started by hollowpoint, Jun 3, 2007.

  1. I'm green to the options world. I've been playing around with a virtual trader for a week now, just buying puts and calls. I am curious about the concept of strangles and straddles.

    A position consisting of a long (short) call and a long (short) put, where both options have the same strike price and expiration date.

    A position that consists of a long OTM (short) call and a long OTM (short) put where both options have the same underlying, the same expiration date, but different strike prices.

    When is it best to use a straddle and when is it best to use a strangle?
    Can someone give me an example of each using goog as an example (the stock im most famaliar with).

  2. LionZion



    My english is not so good but I wiill try to explain it shortly.
    Straddle is bassicly a "single case" of Strangle.
    as much as the Strangle covers more range it will gives you the less receipt and less chance to earn.
    for example if the stock price is 10
    if you are doing strangle from 8 - 12 you cover 4 points for that for example you get (short) 50$.
    for strangle 7 - 13 you will give 40$ or so, for 6 - 14 you will get 30$ and for the much little strangle 10 - 10 which basicly means straddle 10 you will get 100$.
    so its all about risk/chance.

    hope I helped a bit
    thats really on "one leg"