How Does a Long Strangle Seek to Profit from High Volatility: A Case Study of NVDA

Some investors may construct a Long Straddle strategy in an attempt to profit from a rise in volatility. However, its cost is high since it involves paying premiums to buy an at-the-money put and call option with the same strike price. Is there a way to reduce the cost while still potentially profiting from volatility?

The good news is that there is such a way, and it's called the Long Strangle strategy. This approach involves buying two out-of-the-money options with different strike prices but the same expiration date and contract size. Today, we'll explore the alternative for investors who want to limit costs when compared to a long straddle strategy while still aiming to profit from volatility.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies.

Risk Statement

The examples provided herein are for illustrative and educational purposes only and not intended to be reflective of results any investor can expect to achieve. The figures shown in the examples are not guarantees or projections, and no taxes or fees/expenses are included in the calculations which would reduce the figures shown. Actual results will vary.

Moomoo is a financial information and trading app offered by Moomoo Technologies Inc. In the U.S., investment products and services on Moomoo are offered by Moomoo Financial Inc., Member FINRA/SIPC.

This article is for educational use only and is not a recommendation of any particular investment strategy. Content is general in nature, strictly for educational purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. All investing involves risks. Any examples are provided herein are for illustrative purposes only and not intended to be reflective of results any investor can expect to achieve.

Options trading entails significant risk and is not appropriate for all customers. It is important that investors read the Characteristics and Risks of Standardized Options (https://j.us.moomoo.com/00xBBz) before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.

Moomoo does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.