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The fun part about crypto options is that you do not always need to be firmly on the bullish or bearish side, you can simply take advantage of the volatility the crypto market offers and earn profits in either scenario. The crypto option strangle strategy we discuss in this article today is one such tactic to help you profit off of the volatility of crypto.
What is the crypto options strangle strategy, and how does it work? Let’s discover.
What's in this post
An option strangle happens when you hold a position in both call and put options in the same crypto with differing strike prices, while both have the same date of expiration. It is quite similar to a straddle, the only difference being that a straddle uses both call and put options at the same strike price, while strangle in options uses options with different strike prices.
What is an option strangle strategy good for? If you think a crypto, like Bitcoin for example, could experience a significant price movement in the coming times, but are not sure whether it would go upward or downward, you can try out the crypto option strangle.
There are two primary types of strangle: the long strangle and the short strangle options. Here’s what they entail:
This is the more common strangle in options deployed by traders. Basically, if you believe that your crypto is about to have a significant price change soon, you have to buy call and put options in that crypto with different strike prices, so you can reel in profits from either of the two positions.
Remember that the long strangle options strategy carries significant risk as it needs you to get the timing just right to earn profits. You have to gain a good understanding of the asset’s value and its market movements and past trends to be able to predict its upcoming price changes with maximized accuracy.
The short option strangle, on the other hand, involves selling calls and puts in the same crypto at different strike prices. The short strangle options allows you to receive options premiums from the sell, and if you predict market movements right, the premiums you receive could be more than the overall price shift of the crypto underlying.
Now that we know two types of crypto option strangle strategies, here’s a step by step look at how strangle options work:
To elaborate upon the previously discussed similarities and differences between a crypto option strangle and straddle, while both allow you to earn profits from significant market volatility, there are quite a few differences between the two to note.
Here’s a detailed look at the differences of a crypto option strangle and straddle:
Crypto Option Strangle | Crypto Option Straddle |
A long strangle in options involves buying out-of-the-money options (a call where the current price of the crypto is below the strike price, and a put where the current market value of the crypto is above its strike price). | A long crypto option straddle involves buying at-the-money calls and puts (the strike prices are the same as the crypto’s market price) instead of out-of-the-money options. |
With the long strangle, traders need to hope for a big move outside of the range set by the strike prices of their call and put options to earn a profit. | In the straddle, you profit when the price of the underlying crypto rises or falls from strike price by an amount that is more than the total value of the premium, so the price shift traders hope for is not as big. |
Here are some of the benefits a crypto options strangle offers:
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