What is the primary advantage of a strangle option strategy compared to a straddle?

"Strangle" strategies offer higher potential profits. "Strangle" strategies have a lower cost of implementation. "Strangle" strategies are less risky. "Strangle" strategies are simpler to execute.

In a long strangle option strategy, which options are purchased?

In-the-money (ITM) call and put options At-the-money (ATM) call and put options Out-of-the-money (OTM) call and put options A combination of ITM and OTM options

What is the maximum potential loss in a long strangle option strategy?

Unlimited The difference between the strike prices The total premium paid for both options The premium paid for the put option

What is the primary objective of a short strangle option strategy?

To profit from a significant market movement in either direction To profit from a decrease in market volatility To profit from the market staying within a defined range To hedge against potential losses in a long stock position

What is the relationship between the payoff diagrams of long and short strangle option strategies?

They are identical. They are mirror images of each other. They are unrelated. The short strangle payoff is always higher than the long strangle payoff.

How does volatility impact a long strangle option strategy?

High volatility at the time of execution is beneficial. Low volatility during the holding period is desirable. The strategy is unaffected by volatility changes. Increasing volatility during the holding period is favorable.

What is the recommended approach to selecting strike prices for a short strangle option strategy?

Choose strikes that are very close to the current market price. Choose strikes that are far out-of-the-money. Choose strikes that align with the upper and lower bounds of an observed trading range. Choose strikes based on personal preference, regardless of market conditions.

What is the key difference between a straddle and a strangle option strategy?

Straddles involve buying options, while strangles involve selling options. Straddles use ATM options, while strangles use OTM options. Straddles are profitable in volatile markets, while strangles are profitable in stable markets. Straddles are less risky than strangles.

What is the maximum potential profit in a short strangle option strategy?

Unlimited The difference between the strike prices The net premium received from selling both options The premium received from selling the call option

What is the primary risk associated with a short strangle option strategy?

Limited profit potential High upfront cost Potential for unlimited losses Complexity of execution