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    Payoff Schedule Payoff Chart: Nifty at Expiry Net Payoff

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    AKSHAYA AKSHAYA
    This document summarizes a Long Strangle options strategy. It involves simultaneously buying an out-of-the-money call option and an out-of-the-money put option on the same underlying asset with the same expiration date. The strategy profits when the underlying asset moves significantly in either direction. It has limited downside risk equal to the net premium paid. The breakeven points are the strike prices plus or minus the net premium paid for the call and put.

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    Payoff Schedule Payoff Chart: Nifty at Expiry Net Payoff

    Uploaded by

    AKSHAYA AKSHAYA
    13 views2 pages
    This document summarizes a Long Strangle options strategy. It involves simultaneously buying an out-of-the-money call option and an out-of-the-money put option on the same underlying asset with the same expiration date. The strategy profits when the underlying asset moves significantly in either direction. It has limited downside risk equal to the net premium paid. The breakeven points are the strike prices plus or minus the net premium paid for the call and put.

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    This document summarizes a Long Strangle options strategy. It involves simultaneously buying an out-of-the-money call option and an out-of-the-money put option on the same underlying asset with the same expiration date. The strategy profits when the underlying asset moves significantly in either direction. It has limited downside risk equal to the net premium paid. The breakeven points are the strike prices plus or minus the net premium paid for the call and put.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    13 views2 pages

    Payoff Schedule Payoff Chart: Nifty at Expiry Net Payoff

    Uploaded by

    AKSHAYA AKSHAYA
    This document summarizes a Long Strangle options strategy. It involves simultaneously buying an out-of-the-money call option and an out-of-the-money put option on the same underlying asset with the same expiration date. The strategy profits when the underlying asset moves significantly in either direction. It has limited downside risk equal to the net premium paid. The breakeven points are the strike prices plus or minus the net premium paid for the call and put.

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    Payoff Schedule Payoff Chart

    NIFTY @ Net Payoff ( ) 12000


    Expiry
    5100 -7000 10000
    5200 -4500 8000
    5300 -2000 6000
    5380 0
    4000
    5400 500
    5500 500 2000
    5600 500 0
    5700 3000 -2000 5200 5300 5400 5500 5600 5700 5800 5900 6000
    5800 5500
    -4000
    5900 8000
    -6000
    6000 10500

    In the above chart, the breakeven happens the moment Nifty crosses 5380. In such a strategy, risk and reward is
    unlimited.

    Disclaimer

    Page 27
    Long Strangle
    Long Strangle is a strategy to be used when the investor is Neutral on the market direction and bullish on
    volatility.

    This strategy involves buying an “Out-of-the-Money Call Option” and buying an “Out-of-the-Money Put
    Option”. Both options must have the same underlying security and expiration month.

    Long Strangle is a slight modification to the Long Straddle to make it cheaper to execute.

    The investor makes profit when the underlying makes significant movement on the upside or downside. The
    strategy has limited downside.

    Investor view: Neutral on direction but bullish on volatility of the Stock/ Index.

    Risk: Limited to net premium paid.

    Reward: Unlimited.

    Upper breakeven: Buy Call Strike price + net premium paid.

    Lower breakeven: Buy Put Strike price – net premium paid.

    Illustration

    Eg. Nifty is currently trading @ 5500. A Long Strangle can be created by buying Put strike 5400 @ premium
    of 40 and buying Call strike 5600 @ 60 respectively. Net outflow of premium is 100.

    Strategy Stock/Index Type Strike Premium

    Long Strangle NIFTY(Lot size Buy PUT 5400 40


    50) (Outflow)

    Buy CALL 5600 60


    (Outflow)

    The payoff schedule and chart for the above is shown below.

    Page 28

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