The ‘Strangle’ trading strategy is one of the simplest and most popular binary options strategies on Anyoption, based on the expectation of a change in volatility. In this strategy, a trader buys both a ‘call’ and a ‘put’ option with the same expiration date but different strike prices. Using this strategy, the trader expects a sharp increase or decrease in the value of the selected financial instrument. It does not matter in which direction; the more significant the movement, the better.
To get started, you need to do the following for the chosen financial instrument:
- buy an out-of-the-money call option
- buy an out-of-the-money put option, with the strike price differing from the call option’s strike price
Many brokers currently active in the binary options market allow buying both options with a single order, i.e., simultaneously.
Here is how the strategy looks on the chart:
Explanation of abbreviations:
- Put Strike Price – the strike price of the purchased put option
- Call Strike Price – the strike price of the purchased call option
- Lower BEP – lower break-even point
- Upper BEP – upper break-even point
Like any strategy, there are potential profits and losses. As mentioned above, the strategy will be profitable if the volatility of the selected financial instrument increases significantly, i.e., a significant change in the underlying asset’s price.
If the price does not change significantly during the selected time period and remains between the strike prices of both options, the strategy will result in a loss equal to the premiums of both options. Therefore, this strategy is used when traders see that there is no volatility for a certain financial instrument over a long period, as after a period of stagnation (rest), the price tends to change sharply. This strategy can also be applied to financial instruments that have high volatility throughout the trading day.
The possible profits and losses in the binary options trading strategy ‘Strangle’ can be determined as follows:
- Maximum profit: completely unlimited
- Maximum risk: the premium of both the call and put options
- Upper break-even point: maximum risk + call option strike price
- Lower break-even point: put option strike price minus maximum risk
Advantages and disadvantages of this strategy
Advantages:
- You make a profit regardless of the direction in which the asset’s price moves
- You limit your risk
- Marginal requirements equal the maximum risk
Disadvantages:
- You will only make a profit using this strategy if the underlying asset’s price changes significantly
To eliminate this negative factor, experts of ForTrader magazine recommend choosing options for financial instruments with the highest liquidity, i.e., volatility or expected increased volatility, such as before the release of important news. For this, perform a small analysis and see how certain news affected the financial instrument you chose in the past. Pay attention to the maximum and minimum prices over the past six months. This will help you determine not only a period of increased volatility but also the price direction.
Other strategies for trading binary options
- Binary Options Trading Strategy ‘Day-Hour’
- Binary Options Trading Strategy BinaryCash
- Tunnel Trading Strategy for Binary Options
- Binary Options Trading Strategy ‘Precise Entry’
- Binary Options Trading Strategy ‘Catching the Trend’
FAQ
What is the Strangle strategy in binary options?
The Strangle strategy involves buying both a call and a put option with the same expiration date but different strike prices, aiming to profit from significant price movements in either direction.
What are the advantages of the Strangle strategy?
The main advantage is that it allows traders to profit regardless of the direction of the price movement, while also limiting their risk.
When should the Strangle strategy be used?
This strategy is best used when there is a prediction of high volatility, such as before major news events, or when a financial instrument has been experiencing low volatility for a prolonged period.
