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Unless you’ve been out of the markets since October, it’s likely that you’ve experienced some sort of stress in this volatile market.
And no one can know for sure if the correction will continue or if there’s a recovery in sight.
But regardless of what happens next, this is the perfect market for one of my favorite volatility strategies.
I like to call it my double-down volatility system….
Here’s what it’s all about…
The Key to Your Profits is The Straddle
With the market caught in constant volatility, many directional traders are stuck on the sidelines wondering what the markets going to do next…
But you don’t have to be stuck wondering because this double-down volatility strategy can deliver profits in any market.
So, how can we play both sides of the directional fence and make money as long as the stock moves anywhere?
A straddle is an options strategy constructed by buying a call option in the event the stock rises and a put option in the event that the stock falls. The good news is that if the stock rises enough the calls will make more money than the puts lose and vice versa. This makes sense when you consider that long options have limited risk.
For example, if you bought the following straddle:
The max loss on the call is $2.00 and the put max loss is $1.50. If stock XYZ went up making the Mar 40 calls worth $6.00, the puts would lose at most $1.50 leaving you with at least a $2.50 profit in the straddle.
When you consider that these options will have time value left in them, the story is actually better than this, but you get the point.
Now, let’s sweeten the deal and add more volatility to this volatility story.
I’m talking about earnings.
Earnings announcements consistently create more stock volatility than any other market event. On some stocks, this volatility is extreme. Consider the following historic chart on AMZN.
The green “E” triangles are the earnings dates for AMZN
. Notice that in this chart, each of the four earnings periods shown resulted in a gap up or down in the chart. If you’d had a straddle on AMZN
over the earnings announcement, chances are you’d have scored big.
The good news is that there are many stocks that gap like this.
If you’ve never traded straddles, don’t worry. They’re by far one of the easiest option strategies to master. In fact, they’re actually easier to manage than long calls or long puts. You buy a call and a put (straddle) on one day and then sell them on another. Directional moves can only help you!
- Buy At-The-Money (ATM) Straddle
- Entry 30 Days Before Earnings
- Buy 60-90 Day Options
- Loss Exit: 25%
- Profit Exit: 50%
- Exit Day After Earnings
Earnings season is here and there are numerous great earnings straddles on the horizon. These are five of my top straddles for the coming month.
Each of the above straddles have produced an average 35% to 61% with 100% winners over the past four earnings periods. History tends to repeat and this volatile market will only increase the chances of it doing so.
You’ll see the entry date, the exit date and the earnings date shown (along with four of four wins over the past year for each).
To summarize, we are doubling down on volatility by playing straddles in an extremely volatile market which alone is great for straddles -AND- playing stocks that historically gap at earnings.
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America’s #1 Pattern Trader