Low Risk Options

Strangles and Guts are widely used strategies in the derivative markets. Both of these are option strategies using a Call option and a Put option each.
Here we explore the difference between these two strategies and see how they can be used together to produce low risk returns.
What is a s Strangle? Strangles are created by either buying or selling, a call option and a put option. When we create this position by buying options, we call it a Long Strangle.
Similarly, when we create it by selling options, it is called a Short Strangle. The important point here is that the Put option has a lower strike price than the Call option. Table 1 and Chart 1 explains the pay off of a Long Strangle on the Nifty. The total premium outlay is Rs 70 + Rs 25 = Rs 95. The break-even points are 4004 and 4295 (calculations not shown here). 

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