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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

Alpha

An Alpha indicates the measure by which a stock or portfolio has managed to outperform a benchmark like an index of shares.

A positive Alpha means that the security or portfolio is beating the market while a negative Alpha means that it is lagging.

Alpha can also be used to measure the competence of a fund manager and their strategies.

Beta Stocks

Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:

  • High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
  • Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
  • Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
  • Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market

High Beta Stocks

High Beta stocks are shares that outperform the market in terms of returns but carry high risk. Such shares are called “High Beta” because of their significantly high Beta Coeffient value, which measures the correlation of a stock and the market. A Beta value on the high side typically indicates more volatility and the potential for higher returns.

Block Trade

A block trade is a substantially large buy or sell order for a stock, commodity, or other security. Block trades are typically done by institutional investors like hedge funds, mutual funds, and others to mask the true size of the transaction.

Shares change hands between companies after the price of the security is privately negotiated. Most block trades are routed through investment banks and executed outside the conventional market.

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

Equity Options

An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.

Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.



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