Volatile Option Trading Strategies
Long Straddle – A delta neutral strategy best placed in a market with high volatility at a time when volatility is low and where you anticipate a volatility increase. Purchase an equal numbers of ATM Puts and Calls with 45 days or more until the same expiration date.
Entry Rules
Price Consolidation usually visible as a Triangle Formation and tightening Bollinger Bands on a stock chart.
Cheap options - Low Implied Volatility compared to Historical Volatility
Additional Criteria that improve probability of success:
Scheduled earnings announcement or upcoming event.
History of price movement with news or earnings announcements.
Buy 3-4 weeks before announcement when option prices are low, because option prices go up as the announcement date gets closer due to increased volatility, even without the stock price changing.
More on Straddle Option Trading
Long Strangle - A delta neutral strategy best placed in a highly volatile market at a time when volatility is low and where you anticipate a sharp volatility increase. Purchase an equal numbers of OTM Puts and Calls with 45 days or more until the same expiration date.
This strategy is similar to a Straddle. It is less expensive to open, but has further out break-even prices.
Entry Rules
Price Consolidation usually visible as a Triangle Formation and tightening Bollinger Bands on a stock chart.
Cheap options - Low Implied Volatility compared to Historical Volatility
Additional Criteria that improve probability of success:
Scheduled earnings announcement or upcoming event.
History of price movement with news or earnings announcements.
Buy 3-4 weeks before announcement when option prices are low, because option prices go up as the announcement date gets closer due to increased volatility, even without the stock price changing.
More on Option Strangle Trading
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