If it still out of the money at expiry, the option will expire worthless. The Basics of OptionsFor a small premium, stock options give the purchaser the right, but not the obligation, tThis article includes a list of references, but its sources remain unclear because it has insufficient inline citations. Please help to improve this article by introducing more precise citations. (August 2012) ( Learn how and when to remove this template message). This article needs additional citations for verification.
Please help improve this article by adding citations to reliable sources. Put options give the buyer the right to sell a particular stock at the strike price. TAs many of my readers know, my favorite option strategy is to sell out-of-the-money put credit spreads. The win rate is very high, because we can make money even if the stock remains stagnant or even falls a modest amount. The 200 study states on pages 17 and 22-23 (emphasis added):In agreement with previously presented results and prior literature, many option portfolios have risk-adjusted performance worse than the benchmark portfolio.
AbstractWe provide evidence that trading frictions have an economically important impact on the execution and the profitability of option strategies that involve writing out-of-the-money put options. Margin requirements, in particular, limit the notional amount of capital that can be invested in the strategies aA strangle is otm put option strategies simultaneous purchase or sale of a call above the market and a put below the market. Long StrangleA long strangle involves the purchase of both an OTM put and an OTM call.
This strategy is generally utilized when the underlying stock or index is expected to make a very large otm put option strategies, but a direction is unknown. By purchasing both options, the time value of both options begins to erode, so this is an approach often used when an event is expected to spark a sudden move (earnings release, economic data news, conference call, etc.).
A long strangle creates a negative Theta position.A large move would cause the call or put to go ITM, and a move with great velocity could inflate the volatility component of price as well.