Strangles represent an options trading strategy in crypto institutional options trading that involves simultaneously buying or selling both an out-of-the-money (OTM) call option and an OTM put option on the same underlying cryptocurrency, with a uniform expiration date. This strategy allows traders to profit from significant price movements in either direction or from a lack of price movement, depending on whether the strangle is bought or sold.
Mechanism
A long strangle is executed by acquiring an OTM call and an OTM put, anticipating a substantial price swing in the underlying crypto asset, with potential profit if the price moves sharply above the call strike or below the put strike. A short strangle involves selling an OTM call and an OTM put, yielding profit if the asset’s price remains within the two strike prices until expiration, capitalizing on time decay and declining volatility. The mechanism leverages the non-linear payoff profiles inherent to options contracts.
Methodology
Implementing strangle strategies requires precise execution and a clear view on the future volatility of the underlying crypto asset. Institutional traders utilize sophisticated smart trading systems to identify suitable OTM strike prices and manage the aggregate premium paid or received. The methodology involves careful selection of expiration dates, continuous monitoring of implied volatility, and dynamic risk adjustments to manage potential losses if the market moves against expectations or remains range-bound for too long.
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