Options Strategies: What are straddles and strangles?

The Options market is an exciting platform to trade in, the value of returns is what attracts rookie investors to dive right into it without giving it some serious thought. It is very important to have your foundations laid strong for you to generate sufficient returns from Options.

The Options strategies mentioned in this blog are fairly easy to understand and implement. The list was compiled keeping in mind the nature of risk involved, which is limited enough that you get to experiment with options without risking too much capital. It is much less risky than simply owning a stock. As your understanding about Options grow, advanced strategies like the butterfly spread, bull call ladder or the bear put spread can be implemented as per the situation.

Covered Call

This is a simple strategy to limit your losses and book in a fixed profit. From the stocks that you either own or buy, you place a call option letting a buyer buy your stocks at a specified price. Covered Callworks in a short-term position, where if the market remains neutral then the premium you earn is your profit, but if the market falls, then your losses are limited to the price you specified beforehand.

Cash Secured Naked Put

In this strategy, you sell a put option. You collect a premium for accepting an obligation to buy the stocks at the strike price. At its expiration, you get to keep the premium even if you do not buy the stocks. If you maintain enough cash in your brokerage account to actually buy the stocks, then you are considered to be ‘Cash Insured’.


The collarstrategy entails acovered callalong with a put option. You sell a call option for a strike price higher than your current asset value and you sell a put option for a price lower than your asset’s value. In this instance, while you are limiting your profit margin, you are still insured against heavy losses in the instance that the value of your asset falls drastically. Works well for investors who prefer a limited profit over unlimited loss.

Long Straddle

A Long Straddleoptions strategyconsists of purchasing a call and a put at the same strike price and expiration date on your underlying asset or stock. This way you make money no matter which way the market is headed as long as it is higher than the cost of both options combined. This strategy works well when you know the market is going to be volatile but are unsure of which way it will go.

Long Strangle

A Long Strangleis where you purchase a call and a put with the same expiration date but different strike prices. The put strike price is typically less than the call strike price. A long Stranglecosts less than a Long Straddle as both purchases in this case are Out of the Money options. This Options Strategyworks well in a time where you cannot predict the direction of the market but are expecting it to be largely volatile. The loss incurred here is limited to the cost of the options contract.

Once you get the hang of options strategies it becomes fairly easy to go for combination strategies, where you deploy different strategies simultaneously with each other and that’s where the skills of an options investor is tested. Good luck and happy investing!

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