What happens when options expire within the stated strike price? Can any action be taken to keep the option contract active? Learn more here.

The number one reason why some crypto traders tend to avoid trading 

 entirely is because they’re afraid of the complexities involved with options expiration. With the 

 in play, throwing expiration dates into the mix can certainly be daunting for anyone new to the world of derivatives learning how to extract the most profit when trading them. 

What happens to the crypto once the contract expires within the stated strike price? Can any action be taken to keep the option contract active? 

Find the answers to these queries and more with our ultimate guide to options expiration, as we explore what happens when options expire — and what you can do as an options trader if you’re faced with a low days-to-expiration options (DTE) contract.

 are contracts that grant the holder the right to buy or sell an underlying asset at a specific price on or before a predetermined expiration date. While options may provide traders with greater potential returns, they also carry significant downside risk. These factors are ultimately why options are seen as advanced financial 

 best suited to experienced traders who understand the risks involved.

Options are a derivative instrument, meaning that the price of an options contract is derived from the underlying asset. An option gives its holder the right (but not the obligation) to buy or sell a predetermined amount of the underlying asset at a specific price, known as the strike price, on or before the expiration date. 

 grants the holder the right to sell an asset for a specific price on or before the specified expiration date, while a 

 grants its holder the right to buy an asset at a certain price on or before the expiration date.

In exchange for this right, options contracts require payment of a premium. The premium is determined by several factors, including how much time is left until expiration and how far away from the strike price the asset is trading in relation to current market prices. 

 in options contracts look for prices of underlying assets to move above their strike prices before expiration, so they can realize a profit on their position. Conversely, traders with short positions in options contracts look for prices of underlying assets to move below their strike prices before expiration, so they can realize a profit on their position.

The ability to leverage gains with relatively small up-front costs makes options attractive instruments for many traders and investors. However, these same features can also lead to potential losses if the market turns against them. When trading with options it's important for traders to understand how these instruments work, so that they can make informed decisions about when and how much money they should risk with each trade — and protect themselves against any potential losses.

What Are Your Choices Before the Options Expiration Date?

On or before the option's expiration date, traders have several choices to consider, depending upon their market outlook and risk tolerance. Here are the possibilities:

One big reason why options sometimes strike fear among traders is the additional dimension of time that’s factored into the calculation of options premiums. Unlike simply trading shares on the equity market, the options you’re trading can possibly be worth nothing by the time they expire. This is because of their days-to-expiration (DTE), which can cause option premiums to vary considerably the further they are from expiration. 

Curious about what happens to options contracts when they expire? In the following section, we’ll take a look at various examples of options at expiration.

If the options contract is expiring in the money (ITM), meaning that the underlying asset is trading above or below the strike price (for call and put options, respectively), then it will automatically be exercised. This means that if you hold a bought call option, you’ll receive the agreed-upon quantity of the underlying asset at the specified strike price.

Short positions in options contracts will automatically be exercised as well, which can result in a loss if your short position is ITM at expiration.

If the options contract is expiring out of the money (OTM), meaning that the underlying asset is trading at or away from the strike price (for call and put options, respectively), then it will 

. No action needs to be taken, as the options contract will simply expire.

Options traders should note that when options are expiring OTM, it’s possible to receive some value from them by selling them in the open market before expiration. This can result in reduced losses for traders with short positions, and potential gains for traders with long positions. However, they must act quickly so that they can take advantage of this opportunity.

Options expiration dates are typically fixed for the third Friday of each month; however, this can vary depending upon the exchange and the underlying asset. In some instances, if there’s a demand, the asset may offer weekly options that expire every Friday so traders can take advantage of the added flexibility when it comes to contracts with different expiration dates to pick from. 

All in all, it’s important for traders to know when their options contract is set to expire so they can take appropriate action ahead of time if needed.

What Can You Do as an Options Trader Faced With Low Days to Expiration?

When faced with a low DTE options contract, traders have several choices, as outlined above. Each of these alternatives can be beneficial in different scenarios, depending upon the trader's market outlook and risk tolerance. It’s important to remember that options trading carries inherent risks, so it’s essential that traders understand how these instruments work before embarking on any of these strategies.

How to Choose the Right Options Expiration Date

Before you determine the optimal options expiration date, it’s first important first to understand the Greeks and how Theta plays a part in options premium calculations. 

In short, Theta refers to the rate of decline in the value of an option due to the passage of time. It measures the inevitable loss in the premium’s value as time passes. 

Because crypto options contracts have a fixed expiration date, each passing day represents one day less for an exponential move in the ideal direction as the contract heads toward maturity. That’s why Theta is represented as a negative number for long positions and as a positive number for short positions.

Now that we’ve established an understanding of Theta decay for options contracts, we can better understand the optimal days-to-expiration that crypto options traders must consider when deciding to purchase or write options. While traders typically have their preferences when it comes to DTE, some experienced options writers live by the 

 — because 45 DTE grants options short sellers the right balance of accelerating 

 decline, thanks to Theta decay and a large enough extrinsic value premium to warrant the trade entry.

This 45 DTE rule aside, personal preference will ultimately decide how one chooses their options expiration date. This is because long options traders have to decide whether to give enough time for the underlying crypto to move in the anticipated direction, and if that time is worth the additional premium. Conversely, short option traders will have to determine if the extra premium earned from Theta decay is worth the risk of the underlying asset’s price suddenly becoming volatile.

In an ideal environment, options traders should strive to keep their options from expiring, regardless of whether an option is expiring ITM or OTM. This is because traders will be sacrificing the extrinsic aspect of the options contract, which falls over time (thanks to Theta decay). However, there are situations when attempting to salvage a crypto options trade may do more harm than simply letting it expire. In such situations, it may make sense to simply let the options contract expire. For instance:

Options are powerful financial instruments with the potential to generate significant gains for experienced traders who understand how they work and the risks involved. The expiration date of options contracts is an important factor to consider, as it determines when the contracts will expire and whether they’ll be worth anything at the end. 

From explaining the intricacies of options expiration to going in-depth with Theta decay, we hope our guide has been helpful in aiding options traders like yourself assess your ideal DTE. 

When analyzing the cost and benefit of trading options (while taking volatility and Theta decay into account), there can be a fine line between deciding whether it’s preferable to salvage an options trade or simply let it expire. Regarding options expiration dates, crypto options traders must weigh their choices in light of the capital they’re risking and the potential upside that can come from that risk.

Intermediate

what happens when options expiration featured image

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Options Expiration: What Happens When Options Expire?

Bybit Options is excellent to hedge your crypto position. Here are some of the top reasons you should start with Bybit Options to maximize profits. 

Diversifying your investment portfolio is essential, and crypto options offer an excellent way to manage risk and take advantage of price fluctuations in the volatile crypto market. 

Crypto options function in the same way as traditional options in the stock market. Essentially, they confer on you the right, but not the obligation, to buy or sell your crypto assets at a predetermined price and time. Options contracts predominantly offer the choice to trade call options, which give a buyer the right to purchase an asset, and put options, which give a buyer the right to sell an asset. 

In fact, crypto options have gained popularity in recent years because they don’t require substantial capital in order to get started, and they're less risky yet have the potential to generate higher percentage returns than any other method. 

We understand there’s a learning curve for users who want to understand how the options market works. In this guide, we’ll examine the fundamentals of crypto options and see how Bybit Options is an ideal choice to get you started.

Bybit Options are European-style cash-settled Options in the form of derivatives contracts that give you the right to buy or sell an underlying asset at a predetermined price and date. Buyers are required to pay a premium for a Call or Put Option for the rights to the contract.

Since the inception of this product about a year ago, Bybit USDC Options has gained popularity with consistent trading volume. The recent revamp of 

 further enhances traders’ potential to maximize their profits. 

Bybit Options sets itself apart from other options contracts for its versatility and flexibility. Unlike futures contracts, which obligate traders to buy or sell an asset at a specific price, Bybit Options give traders the freedom to exercise their rights at their discretion. In return, traders can make strategic decisions based on market trends and risk tolerance, thus increasing their chances of success at enhanced capital efficiency.

Bybit Options work similarly to traditional financial options contracts that revolve around two contract types: Calls and Puts. 

 holder to buy an agreed-upon amount of an asset for a particular price and date.

: This agreement gives the contract’s owner the right to sell an asset at an agreed-upon price later at a predetermined date.

European-style Options work differently from American-style Options, particularly regarding the contract’s expiration date. Even if a contract is 

 (ITM), the holder can't exercise their option until the set date, at which time the expected outcome of such a contract may have reversed.Bybit predominantly practices European-style Options because the expiration date is fixed, and the profit or loss can be estimated with precision.

When executing this contract, traders should be aware of the following mechanics: 

To learn more about how Bybit European-style Options work, let’s use an example.

 is a BTC Call Option with a strike price of $48,000, which will expire on Oct. 31, 2023. To illustrate the differences between Call and Put Options, we’ll use two different scenarios. 

The market price of BTC at the start of September is $25,000. Ann thinks the price of BTC will be much higher at the end of the month, while Bob believes that BTC’s price will decrease.

Ann buys a BTC Call Option for $1,000. This means she has the right to buy 1 BTC at $26,000 when the contract matures. Bob sells Call Options.

Scenario A: Upon expiration, BTC’s settlement price increases to $29,000. 

 Upon expiration, BTC’s settlement price dips to $24,000.

Let’s say that BTC is trading for $38,000 on September 1. Based on Bob’s research, he believes BTC’s price will drop by the end of the month. Ann, however, thinks BTC’s price is going to rise.

Bob buys a BTC Put Option for $1,000. This means that he has the right to sell 1 BTC at $37,000 when the contract matures. Ann sells Put Options. 

Scenario A: Upon expiration, the BTC settlement price dips to $35,000. 

:Bob exercises his Put Option and makes a $2,000 profit (i.e., $37,000 − $35,000). Minus his $1,000 premium, he walks away with a profit of $1,000.

:Ann needs to fulfill her obligation to sell the Put Option at a strike price of $35,000, and she loses $2,000 (i.e., 35,000 − $37,000). Deducting the $1,000 premium she receives, her total loss is $1,000.

 Upon expiration, BTC’s settlement price increases to $39,000. 

:In this case, Bob loses $1,000, which is the premium he paid for the Put Option.

:Ann doesn’t need to perform her obligations, and earns a premium of $1,000.

The Importance of Hedging in Crypto Trading

Crypto Options have a reputation for hedging and profit maximization, especially in volatile market conditions. Take crypto trading as an example. The prices of cryptocurrencies can swing dramatically in a short period, leading to substantial losses if not properly managed. By hedging their positions, traders can cushion their portfolios against these price swings and improve their overall trading performance.

Essentially, hedging helps protect users’ investments from unfavorable price movements. This involves taking an offsetting position in a related asset to mitigate potential losses.

In addition, hedging also provides profit opportunities. Therefore, even if you anticipate a decline in the price of a cryptocurrency, you can hedge your position by buying a Put option. If the price does indeed fall, the value of the Put Option will increase, offsetting the losses from your original position. Similarly, if you expect a price increase, you can buy Call Options to capitalize on the upward movement.

What Sets Bybit Options Apart From the Rest?

 (UTA) can enjoy enhanced capital efficiency by offsetting their 

 on all Derivatives positions on Bybit, including Bybit Options. 

With the UTA, Bybit Options traders can better hedge their positions without separating their accounts for different Derivatives products, so margins won’t require additional capital for offsetting risks. Since margin trading with a UTA is at the account level instead of the position level, margin requirements could be significantly lower. Thus, traders have more protection for their hedged positions. 

Highly Competitive Options Fees and Best-in-Class Liquidity

Bybit Options trading involves three major fees: trading fees, delivery fees and liquidation fees.

Bybit recently revamped its Option fees across all users' VIP tiers, featuring some of the lowest trading fees in the industry — including zero settlement fees for short-term contract expiration. 

Below is an overview of Bybit Options fee revisions.

Bybit Options Fees Before and After the Update

Pioneer in the Stablecoin-Settled Options Market

 — most widely known for being the issuer of USD Coin (USDC). This partnership paves the way for the rapid growth of all things USDC, including the USDC Options offered on Bybit’s platform, allowing our traders to leverage the strength and stability of the leading digital dollar-based currency.

itigate the risk of volatile price swings without hedging their underlying collateral exposure, as the USDC stablecoin is less volatile than any other cryptocurrency. The ease of calculating profit and loss (PnL) in USD equivalents makes it easier for traders to benchmark and calculate returns. 

Innovative Portfolio Margin Boosts Profitability

 mode helps traders optimize their margin requirements for their trading positions. It considers the overall risk of a portfolio, rather than each position in isolation. By reviewing portfolio-level risk, brokers or exchanges can potentially reduce their margin requirements, which translates into increased buying power and trading flexibility.

Portfolio margin benefits traders by allowing them to trade larger positions with less margin required. This can increase buying power and capital efficiency, potentially opening the door to more trading opportunities.

Bybit Options is one of several trading platforms in the industry to utilize this feature of ETH and BTC Options. Users benefit by lowering their margin requirements on hedge positions that are aligned with the overall risks of the entire portfolio. At the same time,

 Portfolio Margin mode offers traders increased access to leverage, which can help them increase their exposure to the market while maintaining a balanced portfolio. 

With increased leverage, traders can hold larger positions with less capital for a higher return potential with calculated risks.

Trade With Safety and Fairness: Industry-Leading Risk Control

Bybit is committed to protecting users from financial and security risks. We deploy multi-layered liquidation protocols to ensure all Bybit traders can manage risks and safeguard themself from excessive loss in a safe and fair environment. In addition, users on the platform are free to customize their personal settings based on their preference for additional protection and enhanced security.

Trading crypto options on Bybit can be a profitable venture when done correctly. 

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Bybit Options: Advantages to Hedge Your Positions & Maximize Profits

The straddle is a terrific options trading strategy for traders of all levels. We take a look at their key characteristics, tips to help you profit and more.

 strategies is that you can be undecided about going bullish or bearish on your latest crypto options trade and still profit. This is thanks to the potential rise in implied volatility (IV) that comes from an impending catalyst that may cause a larger-than-expected move in the price of the coin or token. Interested in learning about such options strategies that let you play both sides? 

Enter the straddle strategy — a neutral options scheme that lets traders leverage on upcoming volatility and earn a tidy profit, regardless of whether the overall price goes up or down. From the setting up of a straddle options strategy to referencing an example of executing the straddle strategy in the crypto market, here’s all you need to know when it comes to unraveling the secrets of making a profit with long and short straddles in the crypto options market.

There are two types of straddle strategies for crypto options traders to choose from:

To initiate a long straddle, you buy a call option and a put option with the same strike price and expiration date. For the strategy to make money at expiration, the price of the underlying asset must deviate from the strikes (in either direction) by an amount greater than the total premium you’ve paid.

For a short straddle, the opposite applies. Here, you sell a put and call with the same strike price and expiration date. To profit at expiration with this approach, the underlying asset must not deviate from the strikes by more than the total amount of premium collected.

Before even diving into executing straddles, it’s crucial to first understand what drives the premiums of options contracts besides 

 (IV) effectively represents the amount of uncertainty or risk in the market for a particular asset. Implied volatility is derived from option prices themselves by measuring the expected market price movements in an options contract. It indicates how much a trader believes an asset will move over the life of the option, which helps them to decide whether buying or writing an options contract is optimal when executing a straddle options strategy. 

Traders expecting more price movement in the near term should execute a long straddle strategy, since they expect the price of the option to appreciate closer to the catalyst. Conversely, options traders expecting less volatility in price should write a short straddle strategy, as they expect contract prices to be less volatile closer to expiration.

Whether it’s a long or short position, three things apply when setting up a straddle:

Let's see how a long straddle strategy can be used to profit from growing volatility across various coins and tokens.

Let’s take a hypothetical scenario: In two weeks' time, a major blockchain upgrade is taking place on Ethereum’s network, and all the major social media websites are talking about it. You predict it could result in a major price move for ETH, but you’re unsure in which direction. Taking all of this into account, a long straddle options strategy might help you profit.

This example uses at-the-money (ATM) strikes (equal to the underlying security's price). 

, out-of-the-money (OTM) strikes can be implemented to give the trade a bullish or bearish bias. The combined cost of this strategy is a net debit of 0.0714 ETH, which adds up to about $114.24. This also acts as the maximum potential loss for this long straddle options strategy.

For this trade to be profitable, ETH’s price must be above $1,714.24 (call strike + total premium paid) or below $1,485.76 (put strike − total premium) at expiration.

The payoff diagram below features an example of stock prices and illustrates the long straddle's risk profile at expiration. You'll notice the maximum loss occurs when the asset expires equal to the long strikes.

Thanks to the neutral nature of long straddle strategies, options traders have the potential to profit on both the upside and downside as long as ETH’s price moves more than accounted for with the option contract’s IV.

Let's see how a short straddle strategy can be used for coins and tokens to profit from volatility that’s expected to fall over time.

Using Ether as an example again, let’s see how we can benefit from a short straddle and from writing the same call and put contracts. 

In this case, if you don’t expect ETH to move much in terms of price, and expect the volatility to fizzle out over time, then it makes sense to write call and put contracts to open a short straddle options strategy. This effectively lets you take advantage of the high volatility of the options contracts and write the contracts at a high premium, while expecting the price of ETH to remain flat in spite of the major blockchain network upgrade.

The combined premium credit to be received from this strategy is a net of 0.0714 ETH, which adds up to about $114.24. This also acts as the maximum potential gain for this short straddle options strategy.

For this trade to be profitable at the date of expiration, ETH’s price must stay within $1,714.24 (call strike + total premium paid) and $1,485.76 (put strike − total premium).

Unlike the long straddle, which has limited risk (premium paid), the short straddle has limited profit potential (premium received) and significant risk.

The payoff diagram below depicts a short straddle achieving maximum profit when both strikes expire ATM. There’s unlimited loss potential on the upside, and significant loss potential on the downside.

 share many similarities. They’re both price-neutral and structured to benefit from changes in IV. However, while a straddle uses ATM strikes, a 

For a long strangle, you purchase an OTM put option and an OTM call option on the same underlying asset, with the same expiration date.

Like the long straddle, a long strangle benefits when volatility increases. The key difference between the two is that by using OTM strikes, you need a larger move in the underlying asset for the strangle to turn a profit. The payoff is that, all things equal, two OTM options should cost less than two ATM options.

Like the long straddle, a long strangle is low-risk (total premium), with unlimited profit potential on the upside and considerable potential gains on the downside.

The payoff diagram below shows the trade is unprofitable in a wider range than the straddle, becoming profitable when the underlying asset price moves beyond either strike by more than the total premium cost.

A short strangle, pictured below, is a mirror image of the long strangle strategy. While you collect a lower amount of premium by selling OTM options, the range where the trade is in profit is wider than when selling a straddle.

Because the long straddle is a low-risk strategy, it's appropriate for investors of all levels of experience. In contrast, the short straddle is better suited to experienced traders with a high tolerance for risk. This is because of the risk of unlimited loss that may occur when the price of the underlying asset veers too much in either direction, such that the options premiums received are unable to compensate for the price volatility.

The best time to employ a straddle is when you expect volatility to rise and the underlying asset to record a “sufficiently large” movement (by more than the amount of premium received).

Options traders often use the straddle to coincide with potential market-moving events, such as economic data releases and regulatory hearings, or simply when their technical analysis forecasts an impending breakout.

Both long and short straddles have two possible breakeven points at expiration — when the market settles in either direction, equal to the amount of premium either paid or received.

A long BTC straddle centered at the $20,000 strike price, with a combined premium cost of $1,000, will break even at either $19,000 or $21,000 on the expiration date. At both levels, the trade neither makes nor loses money (strike price − settlement price +/− premium paid).

A short straddle centered at the $20,000 strike price generating $1,000 in premium also breaks even at $19,000 or $21,000 (strike price − settlement price +/− premium received).

The sweet spot for a short straddle is when the options expire with the underlying price equal to the strikes. Using the above example, the sweet spot is $20,000 at expiration. Because both options are ATM, they expire worthless and you get to keep the entire premium.

As mentioned earlier, the straddle is designed to profit from both bullish and bearish markets. However, you can modify the strategy if your market view changes during the trading process. Here, we look at two ways you can switch the strategy from price-neutral (horizontal) to directional (diagonal).

Removing the long call converts the straddle into a bearish 

 Although the risk remains limited (put premium +/− the cost of closing the call), the trade now has a bearish bias and doesn't profit if the underlying asset moves above the long call's breakeven price.

Selling the long put flips the straddle to a bullish 

. Similar to removing the put option, the trade's risk is limited (call premium +/− the cost of closing the put), but no longer profits if the market moves below the closed long put's breakeven point.

Here are three strategies to increase the likelihood of a long straddle turning profitable:

One of the straddle's key advantages is its minimal margin requirement. Because the most it can lose is the cost of entry, there’s no need for further margin once you’ve paid the initial net debit.

In contrast, the margin requirement for a short strangle is considerably higher. That being said, Bybit traders with a minimum account balance of 1,000 USDC can choose to activate 

Portfolio Margin mode uses a risk-based approach similar to 

(SPAN) to determine the overall risk level of a crypto portfolio. Using this method, long and short exposures are netted against each other, thus reducing margin requirements for hedged portfolios. For this reason, an existing long or short position may reduce the margin requirement for a short straddle applied to the same underlying asset.

As we’ve explained, options premiums lose value (erode) over time. However, time decay isn't constant, and changes while the contract is active. The measure for gauging how much a premium will lose each day is 

Theta measures a premium's sensitivity to time. Because theta always reflects the amount by which an option will decline, it's always denoted as a negative number. For instance, all things being equal, a 

 valued at $100.00 with a theta of −0.5 will be worth $99.50 the following day, whereas if the option had a theta of −0.9 it would be worth $99.10 the following day.

The theta curve below demonstrates that time decay is not linear. Since there’s less time for the option to realize or increase in value, the rate of erosion accelerates as the expiration date approaches.

Is the Straddle Options Strategy Worth Trying?

Based on the cases and examples presented above, running straddle options strategies can help traders take advantage of volatile markets. However, there are pros and cons to consider before executing the strategy. On the plus side, the straddle strategy helps traders profit if they grasp the concept of implied volatility without forcing them to pick a side, since the strategy is price-neutral. This may be useful in situations where the trader anticipates a large movement in price direction, but is unsure of which way it will go.

Conversely, it can be difficult to gauge how profitable a straddle options strategy will be since the asset must move significantly for it to be profitable for traders executing a long straddle. Additionally, for those writing a short straddle options strategy, there’s always a risk of unlimited losses if the asset’s price moves more than expected in either direction. 

All in all, we believe straddle strategies are certainly worth attempting, since they’re a tool that both experienced and beginning options traders can employ. This recommendation is based on the assumption that traders fully grasp options Greeks, and the effects of implied volatility.

Ultimately, long strangles and straddles are excellent, risk-averse strategies that you can use to profit from changes in implied volatility. As both methods are easy to apply, they can be used by less experienced traders looking for big returns. 

Short strangles and straddles, on the other hand, are appropriate for more experienced traders, or those with a higher tolerance for risk who can mitigate it.

If you're still unsure whether straddles or strangles are right for you, take a look at 

 free educational tools to discover more about the benefits of 

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Straddle Options Strategy: How to Consistently Make Profits

Looking to trade options but not quite sure which strategy to use? Check out our comprehensive guide on straddle vs. strangle options strategy to learn more.

 can be some of the most effective investment strategies available. However, managing 

 can be a little tricky for the novice trader. If you don't fully understand how they work, you can lose a lot of money. Two of the most important strategies you'll need to understand are straddle options and strangle options. This guide will explain the difference between straddle and strangle options and help you figure out the best choice for your situation.

You start creating a long straddle by purchasing both a long call and a long put that have the same expiration date, and a strike price close to the security's current market price. 

If the price of the underlying security increases or decreases by a significant amount, you make money. If the same underlying asset stays around the same price, the call and put help offset each other to minimize your total loss. To make money on a long straddle, you need the price of the asset to move enough that it exceeds the combined cost of both your call and your put.

A short straddle involves selling a call and a put that have the same strike price and expiration date. Short straddles are a popular choice when the market isn't moving much and there’s little volatility. The overall maximum profit for a short straddle is equal to the total premiums for the options, and can be earned by holding the short straddle until it expires. 

Short straddles are less popular than long straddles, because if there‘s volatility, the maximum risk for a short straddle is unlimited.

Advantages of Using a Straddle Options Strategy

When should you try using straddle options? The strategy can be very helpful in certain situations. Here are some of the advantages of working with straddle options. 

The biggest perk of a straddle option is that you don't have to predict whether the price of the same underlying asset will increase or decline. Since you have both a call and a put, straddle options cover your position, no matter what happens. Especially with a long straddle in a volatile market, you can get very impressive returns, irrespective of the direction in which the market ends up moving. 

A straddle essentially lets you bet that the market will change — without having to know 

A helpful perk of short straddle options is that you're actually selling two options instead of one. This means that you can make quite a bit of extra money. Instead of earning only a single premium, short straddles let you potentially double your earnings. This usually only happens if the market remains very stable when you purchase your options, but it's still quite useful.

Disadvantages of Using a Straddle Options Strategy

Despite their many perks, straddle options aren't perfect. In some situations, you can run into the following issues.

, straddle options can be expensive. You'll need to have enough funds to purchase multiple options if you want this strategy to work. If you’re working with limited funds, straddle options usually aren't a good choice. They tend to be more popular among big investors who have thousands of dollars to play around with. 

If you're using a short straddle, you need to be cautious, because if the price of the asset drastically rises or drops before you can sell your options, you could end up with major losses. Theoretically, short straddles predispose you to an unlimited amount of loss. People who make poor decisions while enacting a short straddle can end up losing a lot of money. 

In a long strangle, you buy an out-of-the-money put and an out-of-the-money call. The two options have similar breakeven points and an identical expiration date. Since you buy and exercise both, it doesn’t matter which way the market moves. As long as there’s enough volatility to cause a drastic change, you’ll profit. 

Long strangle options have theoretically unlimited maximum profit. The only thing you risk losing is the initial cost of getting the options in the first place. 

A short strangle occurs when you simultaneously sell an out-of-the-money put and an out-of-the-money call. As long as the price of the underlying asset remains stable, this strategy provides a small amount of profit. However, if there’s a lot of significant price movement in the market, short strangle options can expose you to an undefined amount of loss.

Advantages of Using a Strangle Options Strategy

Strangle options provide investors with several perks, and using this strategy lets you enjoy these benefits. 

One of the main reasons people choose strangle options is to save money. Unlike some other investment strategies, you don't have to use large sums of money just to turn a small profit. Instead, you can start a strangle even if you don't have a lot of capital on hand. Since the strike price for the options isn’t close to the price of the underlying security, they're not very pricey to purchase in the first place.

If you choose a long strangle, you get unlimited profit potential. There are many examples of investors using strangles to make a few simple purchases, and receiving tremendous returns. Since they have unlimited profit potential, a significant price movement can result in a large profit. If you like the idea of making a low-risk decision with high reward potential, a strangle might work well for you.

Disadvantages of Using a Strangle Options Strategy

Though strangle options are popular, they're not entirely foolproof. Here are some examples of ways they can cause problems for investors.

Only Works With Specific Market Movements

When you're working with long strangle options, keep in mind that you need the market to be quite volatile. A small price increase or decrease won't be enough to make this strategy pay off. If the market stagnates for a while, you can lose all of your money. The only way for a long strangle to be effective is if significant market movements are occurring. Meanwhile, a short strangle is the exact opposite, as market volatility can cause the loss of your money. 

If you want to make a profit, you'll need the market to remain fairly stable.

Finding the Right Options Can Be Complicated

With a strangle, you're purchasing out-of-the-money assets, so you have many different options to choose from. Instead of being a relatively straightforward investment, you'll need to take the time to look at the 

 for each option, and see how far away its strike price is from the price of the underlying asset. Long strangles typically benefit from high delta, while short strangles benefit from low delta. However, different strike prices can result in different potential profits.

Straddle vs. Strangle Options: The Similarities

Straddles and strangles have a few things in common. Both of these trading strategies use the underlying concept of simultaneously working with both a call option and a put option, and there are also some similarities in the way that each of these tactics functions. 

When it comes to straddle vs. strangle options, here's what you need to know.

Both Long Options Let You Profit From All Types of Volatility

Whether you have a long straddle or a long strangle, you can profit from any volatility in the market. Both of these trading techniques let you profit, as long as the market makes sudden movements. Regardless of whether you pick long straddle options or long strangle options, you'll make money when prices go up or down. 

The great thing about both of these investment strategies is that it doesn't matter whether the asset price rises or lowers. You just have to accurately predict that there will be price movement. You don't need to predict which way the market will be going.

Both Straddles and Strangles Let You Hedge Your Bets

Straddle options and strangle options are ideal for the cautious trader. Essentially, they’re a way for careful traders to protect themselves from the unexpected. For example, if a trader has a generally bullish outlook on crypto prices, but knows that there might be some dips in the near future, straddles or strangles let them protect their overall position.

Straddle vs. Strangle Options: The Differences

Though straddles and strangles have some theoretical similarities in the way they work, on a practical level they're quite different. Here are some of the main reasons straddles and strangles aren’t identical.

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