Strangle

stran·gle   (strāng'gəl)    v.   stran·gled, stran·gling, stran·gles v.   tr. To kill by squeezing the throat so as to choke or suffocate; throttle. To cut off the oxygen supply of; smother. To suppress, repress, or stifle: strangle a scream. To inhibit the growth or action of; restrict: "That artist is strangled who is forced to deal with human beings solely in social terms" (James Baldwin). v.   intr. To become strangled. To die from suffocation or strangulation; choke. [Middle English stranglen, from Old French estrangler, from Latin strangulāre, from Greek strangalan, from strangalē, halter.] stran'gler n.

strangle 

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.

Investopedia Commentary

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.

For example, imagine a stock currently trading at $50 a share. To employ the strangle option strategy a trader enters into two option positions, one call and one put. Say the call is for $55 and costs $300 ($3.00 per option x 100 shares) and the put is for $45 and costs $285 ($2.85 per option x 100 shares). If the price of the stock stays between $45 and $55 over the life of the option the loss to the trader will be $585 (total cost of the two option contracts). The trader will make money if the price of the stock starts to move outside of the range. Say that the price of the stock ends up at $35. The call option will expire worthless and the loss will be $300 to the trader. The put option however has gained considerable value, it is worth $715 ($1,000 less the initial option value of $285). So the total gain the trader has made is $415.

Related Links

Options Basics Tutorial
Out-of-the-Money Put Time Spreads

See also: Call Option, In the Money, Options, Out of the Money, Put Option, Straddle, Strap, Strip

Main Entry: stran·gle
Pronunciation: 'stra[ng]-g&l
Function: verb
Inflected Forms: stran·gled; stran·gling /-g(&-)li[ng]/
transitive senses
1 : to choke to death by compressing the throat with something (as a hand or rope)
2 : to obstructseriously or fatally the normal breathing of strangled him> strangle intransitive senses
1 : to become strangled : undergo a severe interference with breathing
2 : to die from interference with breathing

strangle stran·gle (strāng'gəl)
v. stran·gled, stran·gling, stran·gles
To compress the trachea so as to prevent sufficient passage of air; suffocate.