Gaining Exposure 	 	•	 205
involved, to devise a method for gaining bearish exposure that fits your own 
risk profile. 
Strangle
GREEN
GREEN
Downside: Undervalued
Upside: Undervalued
Execute: Buy an OTM call option simultaneously with buying an 
OTM put option
Risk: Amount of premium paid
Reward: Unlimited on upside, limited to strike less total (two-leg) 
premium on the downside
The Gist
The strangle is used when the market is undervaluing the likelihood that a 
stock’s value is significantly above or below the present market price. It is a 
more speculative position and, because both legs are OTM, a highly lever-
aged one. It can sometimes be useful for companies such as smaller drug 
companies whose value hinges on the success or failure of a particular drug 
or for companies that have a material chance of bankruptcy but if they can