Options Strategy- Strangle
Sharing my recent take on Strangle option strategy with $Tesla(TSLA.US$ .
I’ve recently undertaken a position with the following analysis.
It’s scary when the loss says Max loss Unlimited while the Max profit is only USD5k.
Note: different Strike prices selected to create a Strangle Strategy with same contract expiry date.
If your new to options a quick reference with link below.
What is a Strangle Strategy?
A strangle is an options strategy in which the investor holds a position in both a call and a put option with different strike prices, but with the same expiration date and underlying asset. A strangle is a good strategy if you think the underlying security will experience a large price movement in the near future but are unsure of the direction. However, it is profitable mainly if the asset does swing sharply in price.
KEY TAKEAWAYS
A strangle is a popular options strategy that involves holding both a call and a put on the same underlying asset.
A strangle covers investors who think an asset will move dramatically but are unsure of the direction.
A strangle is profitable only if the underlying asset does swing sharply in price.
A strangle is a popular options strategy that involves holding both a call and a put on the same underlying asset.
A strangle covers investors who think an asset will move dramatically but are unsure of the direction.
A strangle is profitable only if the underlying asset does swing sharply in price.
Added the inverse if i bought the options instead. Max loss is capped but not the strategy I’m going for in this case. Thanks to not-a-cow for the comments.
Added the Resistance & Support chart which coincides with the put and call position. Thanks to ZnWC for the question.
Added position updates
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SpyderCall : I like it
It is not too wide of a strangle compared to how the big moves that TSLA makes. And there is plenty of time for the price to move. I think this is a safe bet for sure. Good call out on this one.
If there is a big catalysts in the future that moves TSLA's price in a big way, then you could always add more contracts to either side of this strangle to be more bullish or bearish.
not-a-cow : Max loss is only unlimited if you're short a strangle.
CasualInvestorOP SpyderCall: Thanks currently it’s showing a slight loss. But I’m sure with the length of the contract and the design for Strangle. It shouldn’t strangle me instead.
CasualInvestorOP not-a-cow: Showing the opposite for buying the option. As compared to mine was to (short) sell the options.
ZnWC : Thanks for sharing the strangle options strategy. I am curious about how you arrive at the strike prices - put 190 and call 230. The other question is why the expiry date is 241220? Do you use Greek to decide or just based on the current stock performance?
If you short sell an option, the loss can be unlimited.
CasualInvestorOP ZnWC: To be honest it’s my gut feel of current stock performance and swings. I realise it does coincide with the range (support and resistance) as shown.
As for why Dec 20, 2024. I’ve been placing some orders for that period previously. And my risk preference to have a longer timeframe for this time period and obviously for the premium that’s higher for the risk taken.
Hope it clarifies
102315683 : There have been similar situations. As a result, both sides lost money. This is a personal experience (I was double killed anyway)
CasualInvestorOP 102315683: Care to elaborate? You bought or sold the options?
SpyderCall CasualInvestorOP: If TSLA really starts to rip like NVDA very soon, and it looks like it is easily going to pass above 280 before expiration, then the contract premiums will get wonky, and it may show the spread is losing money. The same goes if the price starts to crash very quickly and very soon.
There is a lot of time in these contracts, and you are selling them. So if the price starts to move very quickly very soon, and investors believe in the move, then they could jack up the premiums on the farther expirations like you are holding. This would make the spreads look unprofitable until the volatility in price action slows down. So it will be scary to hold if the price starts moving very fast very soon.
But as long as the price stays within your range until exporation, then you will make a profit. If the price doesn't rip or crash very soon, like if the price moves up or down slowly, then this spread will be a lot less stressful to hold.
SpyderCall SpyderCall: When I say " stay within your range," I am speaking of the breakeven price range in the chart.
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