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