An Options Strangle is a neutral options strategy where an investor simultaneously buys or sells both a call option and a put option with the same expiration date but different strike prices, typically out-of-the-money. In crypto institutional options trading, this strategy is employed to profit from a significant price movement in either direction (long strangle) or limited price movement (short strangle) of the underlying digital asset.
Mechanism
The operational architecture involves two distinct options contracts: a call option with a higher strike price and a put option with a lower strike price. A long strangle profits if the underlying crypto asset’s price moves sharply above the call strike or below the put strike, while a short strangle profits if the price remains between the two strike prices. The net premium paid or received determines the breakeven points.
Methodology
The strategic rationale for implementing an options strangle in crypto markets is to capitalize on or hedge against volatility expectations. A long strangle allows investors to profit from anticipated high volatility without predicting direction, while a short strangle seeks to generate premium income in low-volatility environments. This methodology requires careful assessment of implied volatility and price action, making it a sophisticated tool for institutional options trading.
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