Straddle and Strangle stretegy

What is Straddle?An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date.Why it should be used?An investor who is convinced a particular index will make a major directional move, but not sure whether up or down.An investor who anticipates increased volatility in an index, up and/or down around its current level, and a concurrent increase in overlying options’ implied volatility.An investor who would like to take advantage of the leverage that options can provide, and with a limited dollar risk.Example :Let’s assume the price is currently at $15 and we are currently in April 05. Suppose the price of the $15 call option for June 05 has a price of $2. The price of the $15 put option for June 05 has a price of $1. A straddle is achieved by buying both the call and the put for a total of $300: ($2 + $1) x 100 = 300. The investor in this situation will gain if the stock moves higher (because of the long call option) or if the stock goes lower (because of the long put option). Profits will be realized as long as the price of the stock moves by more than $3 per share in either direction. A strangle is used when the investor believes the stock has a better chance of moving in a certain direction, but would still like to be protected in the case of a negative move. For example, let's say you believe the mining results will be positive, meaning you require less downside protection. Instead of buying the put option with the strike price of $15, maybe you should look at buying the $12.50 strike that has a price of $0.25. In this case, buying this put option will lower the cost of the strategy and will also require less of an upward move for you to break even. Using the put option in this strangle will still protect the extreme downside, while putting you, the investor, in a better position to gain from a positive announcement.Strangle An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset. This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be. The strategy involves buying an out-of-the-money call and an out-of-the-money put option. A strangle is generally less expensive than a straddle as the contracts are purchased out of the money.