# Strangle Bottom Vertical Combination

The **Strangle Bottom Vertical Combination Strangle**, is formed when trader buys put options and the same number of call options with the different strike prices on the underlying asset.

Let us assume that the trader buys put a option with strike price K_{1} and buys a call option with higher strike price K_{2}. In this method, the trader will suffer cash outflow from buy-ins, unlike the Strangle Top Vertical Combination. The presumption is all options should expire on the same time.

## Strangle Bottom Vertical Combination

(compute based on: options volatility 10%, risk free rate on options 10%, K $55, K_{1} $55, K_{2} $60 period 6 months, present value of initial cashflow neglected, equity)

Let us assume P_{1} be buy-in price of put option with underlying strike price K_{1}, P_{2} be buy-in price of call option with higher underlying strike price K_{2}. The assumed current price of underlying asset is K = K_{1}.

### Strangle Bottom Vertical Combination

Profit Table

Initial Cash Outlay = – P_{1} – P_{2}

Underlying Price Range | Payoff from Long Put Option at K_{1} strike |
Payoff from Long Call Option at K_{2} strike |
Total Payoffs |

S_{T} ≤ K_{1} |
K_{1} – S_{T } |
0 | K_{1} – S_{T} – P_{1} – P_{2} |

K_{1} < S_{T} < k_{2} |
0 | 0 | – P_{1} – P_{2} |

S_{T} ≥ K_{2} |
0 | S_{T} – K_{2} |
S_{T} – K_{2} – P_{1} – P_{2} |

In the model of Strangle Bottom Vertical Combination using cash inflow method, the trader is of the opinion that the underlying price will remain in between K_{1 }and K_{2} that there will be a profit.

The Strangle Bottom Vertical Combination can be viewed as a profit capped trade as profit is limited to P_{1} + P_{2}. Alternatively, the Bottom Vertical Combination Strangle is a very low reward high risk trade because loses are unlimited going up and up to a maximum of K_{1} if prices of underlying dropped.

The reward is very low because K_{1} and K_{2} are some distance price away from the current underlying asset price, hence these options should not cost too much to buy.

(compute based on: options volatility 10%, risk free rate on options 10%, K $60, K_{1} $55, K_{2} $60 period 6 months, present value of initial cashflow neglected, equity)

This trade is a form of volatility trade quite similar to the Straddle. This trade is profitable when option seller priced a low expectation of market volatility but actual market price is higher.

Best Options Trading for Dummies profits on Strangle Bottom Vertical Combination, Bottom Straddle, Top Straddle using Options Trading 101.