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Finance GlossaryLong Strangle
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Long Strangle

Definition of Long Strangle

A long strangle is an options strategy involving the purchase of both a call option and a put option on the same underlying asset with the same expiration date. The strike price of the call option is typically higher than the current market price, while the strike price of the put option is lower. Long strangles are used to generate a profit regardless of the underlying’s price direction.

Related Terms

Book Entry Securities

Book entry securities are financial instruments like stocks, bonds, ETFs, and others whose ownership is recorded and tracked electronically. Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Book entries have made ownership certificates obsolete as they track who owns what electronically.

The trades are settled by the depository like NSDL or CSDL which sends the buyer a statement confirming ownership.

Discounted Cash Flow

Discounted cash flow is a method of valuing a company in the present based on future cash flows. An investment may be profitable in the present if the discounted cash flow is above the current cost of investing.

The formula to calculate discounted cash flows is:

DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n

Gamma

Gamma is a mathematical formula used to measure the change in the delta of an options contract price.

Delta is the change in the price of an options contract in relation to the underlying asset’s price.

In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2

Dividend Reinvestment Plan (DRIP)

A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.

Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.

Delivery Date

The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.

Dividend Yield

A dividend yield is a ratio of dividends paid per share by the latest share price, expressed as a percentage. It is used to understand how much dividends a company pays per share outstanding. The formula to calculate dividend yields is:

Dividend Yield: Dividend Per Share / Current Shar Price

A high dividend yield indicates a company’s willingness to redistribute more profits to shareholders, while a low dividend yield signals the opposite.



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