Question

An investor bought the straddle on the $50 strike for $6. What price must the stock expire at in order for the investor to make money? Please describe a strangle option strategy? Please describe a straddle options strategy? In what ways are they similar? In what ways are they different?

Answer 1

Hello Sir/ Mam

Straddle purchased on $50 strike at $6 willl yield a profit for investor if the stock expires at price more than $56 or less than $44.

STRANGLE OPTION STRATEGY

It is an option strategy in which an investor tends to hold both the call and the put position with the same expiry date, written on a same underlying asset but with different strike prices.

STRADDLE OPTION STRATEGY

It is an option strategy in which an investor holds both the call and the put position with the same expiry date, written on a same underlying asset and with same strike prices.

Similarities

They both are:

• Written on the same underlying.
• Have same expiry date.
• Entered into when a large stock movement is expected but surity about direction of movement can't be reliably estimated.
• Strategies to hold both call and put options.

Difference

They are different as STRADDLE strategy is used by buying both call and put options of same strike price, while STRANGLE strategy involves buying the call and put of different strike price.

I hope this solves your doubt.

Do give a thumbs up if you find this helpful.