Strangle (options)

A strangle is like playing a big game of "what if" with stocks. You can do it if you want to be prepared for anything that might happen.

One way to do this is to buy two things: a call and a put option. Both of these are like special tickets that give you the right to buy or sell a stock in the future at a certain price (which is called the "strike price").

With a call option, you're hoping that the stock will go up in price in the future. So, you get to buy the stock at a lower price (the strike price) and then sell it for a higher price (the market price). With a put option, you're hoping that the stock will go down in price in the future. So, you get to sell the stock at a higher price (the strike price) and then buy it back at a lower price (the market price).

Now, here's where the strangle comes in. You buy one call option and one put option, but the strike prices are different. The call option has a higher strike price than the current price of the stock, and the put option has a lower strike price than the current price of the stock. This way, you have the right to buy the stock if it goes up a lot and the right to sell the stock if it goes down a lot.

So, if the stock stays the same price, nothing happens and you lose a little bit of money because you paid for the options. But if the stock goes up a lot, you make money because you can sell the stock for a higher price than you bought it for (with the call option). And if the stock goes down a lot, you also make money because you can sell the stock for a higher price than it's worth (with the put option).

It's like having a backup plan for whatever might happen to the stock price. It's not always the best strategy, but it can be useful in certain circumstances.