Strangle

Strangle
An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset.

This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be.

The strategy involves buying an out-of-the-money call and an out-of-the-money put option. A strangle is generally less expensive than a straddle as the contracts are purchased out of the money.

For example, imagine a stock currently trading at $50 a share. To employ the strangle option strategy a trader enters into two option positions, one call and one put. Say the call is for $55 and costs $300 ($3.00 per option x 100 shares) and the put is for $45 and costs $285 ($2.85 per option x 100 shares). If the price of the stock stays between $45 and $55 over the life of the option the loss to the trader will be $585 (total cost of the two option contracts). The trader will make money if the price of the stock starts to move outside of the range. Say that the price of the stock ends up at $35. The call option will expire worthless and the loss will be $300 to the trader. The put option however has gained considerable value, it is worth $715 ($1,000 less the initial option value of $285). So the total gain the trader has made is $415.


Investment dictionary. . 2012.

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  • Strangle — Stran gle, v. t. [imp. & p. p. {Strangled}; p. pr. & vb. n. {Strangling}.] [OF. estrangler, F. [ e]trangler, L. strangulare, Gr. ?, ?, fr. ? a halter; and perhaps akin to E. string, n. Cf. {Strain}, {String}.] 1. To compress the windpipe of (a… …   The Collaborative International Dictionary of English

  • Strangle — Stran gle, v. i. To be strangled, or suffocated. [1913 Webster] …   The Collaborative International Dictionary of English

  • strangle — I verb arrest, block, check, choke off, crush, extinguish, hush, inhibit, keep back, keep down, mask, muzzle, put a stop to, quell, quiet, repress, reserve, restrain, silence, smother, snuff out, squelch, still, stop, strangulare, subdue,… …   Law dictionary

  • strangle — (v.) c.1300, from O.Fr. estrangler, from L. strangulare to choke, stifle, check, constrain, from Gk. strangalan choke, twist, from strangale a halter, cord, lace, related to strangos twisted, from PIE root *strenk tight, narrow; pull tight, twist …   Etymology dictionary

  • strangle — vb *suffocate, asphyxiate, stifle, smother, choke, throttle …   New Dictionary of Synonyms

  • strangle — [v] choke, stifle asphyxiate, gag, garrote/garrotte, inhibit, kill, muffle, quelch, repress, restrain, shush, smother, squelch, strangulate, subdue, suffocate, suppress, throttle; concepts 130,191,252 Ant. free, let go, loose …   New thesaurus

  • strangle — ► VERB 1) squeeze or constrict the neck of, especially so as to cause death. 2) suppress or hinder (an impulse, action, or sound). DERIVATIVES strangler noun. ORIGIN Old French estrangler, from Greek strangal halter …   English terms dictionary

  • strangle — [straŋ′gəl] vt. strangled, strangling [ME stranglen < OFr estrangler < L strangulare < Gr strangalan < strangalē, halter < strangos, twisted: see STRONG] 1. to kill by squeezing the throat as with the hands, a noose, etc., so as to …   English World dictionary

  • strangle — A trading strategy using options that is designed to profit from material increases in the volatility of the underlying. Similar to a straddle but using only put and call options with strike prices that are out of the money. American Banker… …   Financial and business terms

  • strangle — 01. The murdered woman had been [strangled] with a belt. 02. The dog almost [strangled] itself when it got its leash tangled on the fence. 03. I dreamt that someone was trying to [strangle] me, and when I woke up, I found my blanket had gotten… …   Grammatical examples in English

  • strangle — [[t]stræ̱ŋg(ə)l[/t]] strangles, strangling, strangled 1) VERB To strangle someone means to kill them by squeezing their throat tightly so that they cannot breathe. [V n] He tried to strangle a border policeman and steal his gun... [V n] He was… …   English dictionary

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