| Hey Traders, If you’ve ever felt torn between betting on a stock to rip higher or crash lower before a big event, the strangle might be your best friend. This options strategy thrives when chaos is on the horizon: earnings, Fed decisions, major product launches — anything that could spark a move bigger than the market expects. Instead of guessing direction, you’re betting on movement. The Strangle Setup (Simple Version)- Buy an out-of-the-money (OTM) put → betting on a drop
- Buy an OTM call → betting on a rally
- Pay a net debit → this is your max loss
You win if the stock moves enough in either direction to cover the combined cost of both options. Real Example: Netflix (NFLX) Before EarningsRight now, NFLX is trading around $1,228 (see chart). The stock has been chopping sideways, but we know earnings can be fireworks. Here’s a clean strangle setup: - Buy the $1,200 put for $35 → $3,500 debit
- Buy the $1,260 call for $40 → $4,000 debit
- Total cost = $7,500 (your max risk)
Post-Earnings OutcomesIf NFLX dumps to $1,140: - Put = worth about $60 ($6,000)
- Call = worthless
- Net = $6,000 – $7,500 = –$1,500 (loss)
But if it flushes harder to $1,080: - Put = worth about $120 ($12,000)
- Call = worthlessNet = $12,000 – $7,500 = +$4,500 profit
If NFLX rips to $1,320: - Call = worth about $60 ($6,000)
- Put = worthless
- Net = $6,000 – $7,500 = –$1,500 (loss)
Push higher to $1,380: - Call = worth about $120 ($12,000)
- Put = worthless
- Net = $12,000 – $7,500 = +$4,500 profit
If NFLX sits at $1,228 after earnings: - Both expire worthless
- Max loss = $7,500
Keys to Maximizing Your Edge- Timing matters: Buy options 1–2 weeks before the event (30–45 days to expiration).
- Close right after earnings: Don’t hold through IV crush.
- Size smart: Keep risk under 3% of your portfolio.
3 Perfect Strangle Candidates Right Now- META – product event buzz
- AI – earnings volatility
- SPY – Fed meeting fuel
Look for situations where the market is pricing in a 3% move, but you believe it could swing 6%+. That’s where strangles shine. Action Plan This Week- Scan the earnings calendar for high-beta names.
- Check the option market’s “expected move.”
- Drop a strangle if you think the move will be bigger.
- Set a mental stop (like –50% of premium paid).
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