Implied Volatility

A strangle is a strategy where a trader buys both a call and a put option. Both Implied volatility have the same maturity but different strike prices and are purchased out of the money. In other words, the strike price on the call is higher than the current price of the underlying security and the strike price on the put is lower. The time to employ a strangle is when you believe the underlying security will undergo large price fluctuations but are unsure as to which direction.

If the price of the stock rises beyond the strike price of the call, the investor can do his call option and buy the security at a discount. In the other situation, if the price of the stock drops below the strike price of the put, the investor can do the put option to sell the security at a higher price.

For the investor to come back the premium paid for both options and lose nothing, the price of the stock needs to move beyond the higher or lower strike prices by an amount equal to the total premium paid for the options. These upper and lower breakeven points are calculated by simply adding the total premium paid for both options to the call option strike price and subtracting it from the put option strike price. Once the stock price moves beyond these breakeven points on either end, the investor makes a profit. If the price remains the same or stagnant, the investor will have a loss.

For the investor to come back the premium paid for both options and lose nothing, the price of the stock needs to move beyond the higher or lower strike prices by an amount equal to the total premium paid for the options. These upper and lower breakeven points are calculated by simply adding the total premium paid for both options to the call option strike price and subtracting it from the put option strike price. Once the stock price moves beyond these breakeven points on either end, the investor makes a profit. If the price remains the same or stagnant, the investor will have a loss.

For the investor to come back the premium paid for both options and lose nothing, the price of the stock needs to move beyond the higher or lower strike prices by an amount equal to the total premium paid for the options. These upper and lower breakeven points are calculated by simply adding the total premium paid for both options to the call option strike price and subtracting it from the put option strike price. Once the stock price moves beyond these breakeven points on either end, the investor makes a profit. If the price remains the same or stagnant, the investor will have a loss.

For the investor to come back the premium paid for both options and lose nothing, the price of the stock needs to move beyond the higher or lower strike prices by an amount equal to the total premium paid for the options. These upper and lower breakeven points are calculated by simply adding the total premium paid for both options to the call option strike price and subtracting it from the put option strike price. Once the stock price moves beyond these breakeven points on either end, the investor makes a profit. If the price remains the same or stagnant, the investor will have a loss.