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Derivatives

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  • August 24, 2022
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Rebate Strangle Option

A pair of options (a put and a call) with non-standard rebate and payout features. The strike price of each option underlying the strangle, serves as the knock-out trigger for the other. If this trigger is traded through, the out-of-the-money option would expire automatically, whereby obliging the strangle short (seller) to refund the strangle premium to the buyer in full. The seller’s loss may be higher than the premium if the underlying rises well above or drops well below a respective strike. However, the seller could receive a big premium if his expectations are proved to be on the mark, with the underlying staying in the range formed by the two prongs of this strategy.


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