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Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Long Strangle

Example: XYZ is trading at $65

Outlook: You anticipate a significant move either up or down over the next four weeks with a possible increase in volatility.

Possible strategy: Buy the Strangle

Buy one Nov 70 strike call at $2.40

Buy one Nov 60 strike put at $2.05

Net Debit $4.45 ($445)

*All values shown are at the time of expiration. Commissions and other trading fees not included.

Stock	Long 70 Call Profit/(Loss)	Long 60 Put Profit/(Loss)	Net Profit (Loss)
50	($2.40)	$7.95	$5.55
55	($2.40)	$2.95	$.55
60	($2.40)	($2.05)	($4.45)
65	($2.40)	($2.05)	($4.45)
70	($2.40)	($2.05)	($4.45)
75	$2.60	($2.05)	$.55
80	$7.60	($2.05)	$5.55

At Expiration:

Maximum Profit = Unlimited

Upside Breakeven = Call Strike Price + Net Debit
Upside Breakeven = $74.45

Downside Breakeven = Put Strike Price - Net Debit
Downside Breakeven = $55.55

Maximum Loss = Net Debit
Maximum Loss = $445

In Summary: The Long Strangle has limited risk with unlimited profit potential to the upside and substantial profit potential to the downside. A profit is possible with a big move in XYZ stock over the next four weeks or a major increase in volatility. Remember, when volatility increases, both call and put premiums increase as well.