Option straddles and strangles,free binary options trading strategies,options market makers - Test Out

19.02.2015 admin
Weekly options have been growing in popularity because of their short-term hedge, in lieu of a contract that’s more expensive and requires more time. You see, with monthly contracts you have to buy and hold for possibly two to three weeks before the earning report even happens.
It’s not uncommon for companies like Google, pictured below, to actually have stellar earnings, earnings that knock the ball out of the park and yet they gap lower on earnings because it had already been priced in. In fact in Google’s case above, the earnings were priced in and then some before the announcement. Well, there are two strategies that I typically like to use with weekly options; strangle or straddle. With these strategies, you’re going to be buying two contracts, both a call and a put.
Well after you know the news has come out, whether the market has moved up or down or not even moved at all, you have to realize that this has all been a hedge and it’s time to get out of the position. Kirk Du Plessis is a full-time options trader, real estate investor, stay-at-home Dad and personal coach.
Yes you would be negative vol but the idea is more that you hedge your stock position and hopefully for only a few days. You could of course trade the bigger indexes but this was for those that trade single stocks and have a large un-hedged position. You can looks at credit for ATM straddle to give you ideas of market expected move is for that stock(ie $25point credit for say apple ATM straddle means market makers expect $25 pt move. These traditional monthly contracts, while great, don’t offer any real advantages over weekly options when we talk about earnings season and hedging. Google beat earnings estimates but analysts had come to expect even more and, as a result, the stock sold off for the next week.
And that’s going to give you protection on both sides of the announcement whether the stock rallies or whether the stock tanks after the announcement.


You can grab his completely FREE 12-Part Video Training Course which will help you discover how to trade options for consistent monthly income. Options Analyst Brian Overby fields a question from an email from an options trader whose straddle hasn't gone as planned.A Hi Brian,I tried to follow your discussions on one of the taped webinars, but it's not sinking in. But chances are you don’t and so the earning season for a lot of stocks is going to come with a lot of volatility.
He was recently featured in Barron’s Magazine as a contributor to their Annual Broker’s Review and is the Founder and Head Trader here at Option Alpha. Yesterday I theorized ZNGA was going to move big after earnings was announced after the close, so prior to the close I bought a strangle using the Feb18 15 calls and Feb18 14 puts. Also in low volatility if hi beta stock is coming into earnings and bullish chart you could go long an out money call option a1-2 weeks prior earnings and get volatility spike in premium and close it before earnings when options have highest volitility in the premiums. The ZNGA trade as described above is a long strangle because the put and the call that were purchased do not have the same strike price. If the call and put strikes were the same and with the same expiration the trade would be considered a long straddle.A long straddle or strangle is looking for a big move either up or down, the direction doesn't matter since the bought call gives you the right to buy the stock at a strike price and the bought put gives you the right to sell the stock at a strike price.
Since we are buying the options the risk is the net debit paid for the trade plus any commissions.Whenever you are doing a strategy around an event (like earnings), you have to pay attention to a lot of variables. In this instance those options were trading at a 227% implied volatility (IV) before the earnings was announced. This is a high IV number for any stock option contractsA period - no matterA what market segment it is located in!
This means the options are very expensive relative to normal times without a news event pending.
Also it is harder to lose the entire investment mainly because the stock would have to end right on the strike at expiration to achieve the maximum loss on the trade, which is obviously not the case in the strangle.Second, if performing a straddle you do really want the stock to be close to the strike. Also, if it is close to expiration you have to ask yourself "can the stock move more than the price paid for the straddle (in one direction)".


Look at some graphs and see if it has done that move after earnings the past 3 or 4 times announced. In the case with the strangle, you need even a bigger move because both of the options are out-of-the-money to start with so it has to make a couple percent move in one direction just to get to a strike.Now in this case the implied volatility dropped was over 100% after the earnings was announced, you received a volatility crunch. This type of volatility crunch is common after an earnings report, especially when you have a very short term option. Lessons do not usually come this "cheap" when trading options.Lastly, the straddle videoA mentioned also goes into detail about how the straddle is priced and why, in most cases, the stock will not make the move priced into the straddle. The market knows how to price the straddle around an event - in other words the price will be accurate based on the underlying and the previous volatility around earnings.Now, if you come back to me and say "if those are the stats, then I will just sell the straddle naked and 7 out of 10 times it will be a winner". The risk is unlimited when you are short a straddle so realize it just takes one castrophic move and you are creamed!
Done trading forever.A To make an analogy there are many times when a football team is favored by 7 and loses the game by 40. Options involve risk and are not suitable for all investors.A Click here to review the Characteristics and Risks of Standardized OptionsA brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.A Online trading has inherent risks dues to system response and access times that may vary due to market conditions, system performance, and other factors.
Multiple-leg options strategies involvingA additional risks and multiple commissionsA and may result in complex tax treatments. TradeKing provides self-directed investors with discounted brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice.
You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.



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