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Do you think a title is about to evolve strongly in the next days, weeks or months? You don’t have to guess the direction if you initiate a choke or a gap. These options trading strategies reward traders for dramatic price moves. Although you must guess the direction correctly if you buy a call or a put, chokes and straddles require you to buy one of each contract. If a trader can only choose between a straddle or a strangle, which should he choose? This in-depth analysis of throttling and straddle options can help you make a better decision.

A choke is an options trading strategy that relies on a sudden price movement to achieve profitability. The trader starts this position by buying a call and a put with the same strike price and the same expiration date. A bottleneck loses value if the price of a stock stays the same.

A straddle is similar to a choke. This options trading strategy involves a call and a put, each with different strike prices. The trader profits if the stock swings strongly in either direction, but the straddle will lose value if the stock remains flat or barely moves.

Not everyone can trade chokes and straddles. You need a level 3 options trading account with your brokerage to use these strategies. Options brokers have levels in place to determine which options trading strategies you can use. Level 1 options traders can only sell covered calls, while level 5 options traders can use any strategy.

Level 3 options trading acts as a middle ground and gives you access to most strategies. Chokes and straddles are part of this account, but you can also access condors, butterflies, vertical spreads and other strategies.

Chokes and straddles are similar, but they have a few key differences.

The strike prices for the call and put options of a straddle are the same. If the trader buys a call with a strike price of $70, the put will also have a strike price of $70. Options in a choke have different strike prices, and the call always has a higher strike price. For a choke, a trader can buy a call with a strike price of $75 and a put with a strike price of $65.

A straddle costs more to set up than a choke. Straddles use near-the-money or at-the-money strike prices. Options traders who use chokes buy a call and a put which are both more out of the money. Because these two options are more out of the money, their premiums are lower. This is why it costs less money to set up a choke than an overlap.

Whichever one you choose, it’s important to keep commissions in mind. Many brokers charge a fee for each option trade. You may have to pay a fee to buy a call and then an additional fee to close the position. This can get frustrating and take a significant toll on your profits, especially if you want to open multiple straddles and chokes. Traders should look for options brokers that have lower fees to reduce expenses.

Straddles and chokes both benefit from pronounced price movements in either direction. The directional bias depends on how you set your strike prices, but large moves will help both positions. Overlaps have some variance depending on how far you deviate from the money with each position.

Suppose a stock is priced at $100 per share. An options trader can initiate a choke by buying a call with a strike price of $105 and a put with a strike price of $90. It is better for the trader for the stock to go up $7 than to go down $7. The call is in-the-money if the stock price reaches $107, while $93 per share causes the worthless put to expire.

An option experiences greater price fluctuations if it is out of the money. While straddles typically involve close or at-the-money options, straddle traders buy a call and put further at-the-money. An overlap may undergo a faster change in value.

A choke has greater profit potential than a straddle. It breaks even earlier than a choke because those options are at the money. Overlaps have a lower cost, which is useful in case the options expire worthless. However, a choke has a greater profit potential.

Wondering if a choke or a straddle is the best move for your wallet? Here are a few things to consider before buying a call and implementing any of these strategies.

• What strategy works for your risk tolerance? Overlaps cost more but have a more generous equilibrium price. Both options present the risk of paying for something that expires worthless, but straddles tend to have equilibrium prices closer to the money than chokes.
• What are your portfolio goals? Knowing how options trading fits into your portfolio goals can help you decide if a choke or a straddle is the best choice for you.
• How much capital do you want to allocate? Traders with less capital can benefit from chokes, but if you have no problem spending a bit more, straddles may be the way to go.
• Do you need a hedge? If you have an out-of-the-money covered call, buying an near-the-money call for a straddle can be part of a hedge. A choke or overlap can be part of a hedge, and it’s a good idea to see what hedges you need before deciding on a strategy.
• Do you enjoy profits or saving money? A choke is cheaper to set up, but the profits are higher with overlaps. Knowing whether you’re enjoying the profits or saving more can guide your decision.

Chokes and Straddles are Level 3 options trading strategies that can boost your returns and help you capitalize on sharp price moves. Knowing your portfolio goals can help you decide which options trading strategy is right for you. Straddles and chokes are the tip of the iceberg with a level 3 options trading account. You can also try condors, butterflies, vertical spreads and other options trading strategies that are not not available at levels 1 and 2.