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Options Made Easy: Your Guide to Profitable Trading, Second Edition by Guy Cohen

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Strangles

The Strangle involves the following steps:

Step 1.
buying OTM strike puts and
Step 2.
buying OTM strike calls with the same expiration date.

This will be a net debit transaction given that you are paying for equal numbers of calls and puts. Because you are buying OTM options where there is no Intrinsic Value, the Strangle is a cheaper alternative to the Straddle. However, it also has a slightly different risk profile, although the basic rules are almost identical.

Strangle

The risk profile of a Strangle is as follows:

 Strangle
Maximum riskNet debit of the spread (that is, what you pay)
Maximum rewardUnlimited
Breakeven on the downside ...

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