Common Sense Calls To Action
Advanced Option Spreads & More
It’s been a busy week and one where a great deal of time and effort has been dedicated to teaching you how to be the “best damn investor or trader” you can possibly be. This was a very busy week for me as well when you own a stock in any industry by rule you have to monitor and remain diligent regarding any news that hits. That’s what we saw this morning as Dollar Tree, a ‘direct competitor’ of Dollar General, reported earnings and they missed.
Jack be nimble, Jack be quick. I bought three (3) series of $160 priced puts for Friday’s, next week’s 2024 March and the 2024 June expirations. If anything there is a lesson to be learned here. You must remain diligent and watch for everything. Companies in the same industry report in groups and the “street” reacts. What the eventual outcome of this all will be no one knows as crystal balls are often cloudy. How you approach these types of scenarios is not and those who abide by the “rules” found in our courses are a bit ahead of the game. They’ve improved their skills and you should too.
Advanced Options
Although I am not going to use either strategy with respect to Dollar General it’s best to bring them to your attention as we complete “options” week. These and more are a big part of what is taught in our option courses and in the “One-On-One” tutorials. A good many who take advantage of what exactly we teach understand that learning’s a marathon not a sprint but you have to start somewhere.
A straddle is an options trading strategy where an investor holds a position in both a call and a put with the same strike price and expiration date. It’s often used when the investor expects a significant price movement in the underlying asset but is unsure about the direction of that movement. The straddle allows the investor to profit from a substantial price swing, regardless of whether the asset's price goes up or down.
The key components of a straddle strategy are call options that give the investor the right, but not the obligation, to buy the underlying asset at the specified strike price before or at the expiration date. It also involves put options that give the investor the right, but not the obligation, to sell the underlying asset at the specified strike price before or at the expiration date.
The investor profits when the price movement of the underlying asset is significant enough to cover the combined cost of both of the call and put options. The profit is maximized if the asset's price makes a substantial move in either direction. The main risk is the total premium paid for both the call and put options. If the price movement is not significant enough to cover these costs, the investor may incur a loss.
The point at which the combined profits from the call option and the losses from the put option offset each other, resulting in no net gain or loss. The point at which the combined profits from the put option and the losses from the call option offset each other. Straddles work in highly volatile markets where significant price movements are more likely. Increased volatility typically leads to higher option premiums, which benefits the straddle strategy. Straddles are often employed before events such as earnings announcements, where a substantial price movement is anticipated.
It's important to note that while straddles can be profitable in volatile markets, they come with higher costs due to purchasing both a call and a put option. Additionally, timing is crucial, as the strategy may not be as effective if the price movement doesn't occur within the desired timeframe.
A strangle is an options trading strategy similar to a straddle, but with different strike prices for the call and put options. In a strangle, an investor “simultaneously” buys an out-of-the-money (“OTM”) call option and an out-of-the-money put option with the same expiration date. The primary strangle objective is to profit from a significant price movement in the underlying asset, regardless of the direction, while generally reducing the upfront cost compared to a straddle.
The key components and considerations of a strangle strategy involve purchasing a call option with a strike price above the current market price and a put option with a strike price above the current market price.
The investor profits when the underlying option asset experiences significant price movements, either up or down. It’s maximized if the price movement is large enough to cover the combined premium paid for both options. The risk is the total premium paid for both the call and put options. If the asset's price does not move significantly, the investor may incur a loss.
The point at which the combined profits from the call option and the losses from the put option offset each other. The point at which the combined profits from the put option and the losses from the call option offset each other.
Strangles also benefit from increased volatility, just like straddles. A higher volatility results in higher option premiums, making the strategy more attractive. They’re often employed when traders expect a significant move in the underlying asset but are less certain about the direction of that move. Similar to straddles, strangles are commonly used before events such as earnings announcements or major economic releases, where a substantial price movement is anticipated.
Strangles can be a useful strategy for traders who anticipate volatility but want to reduce the initial cost compared to a straddle. However, they still carry the risk of time decay and may require careful monitoring and management, especially if the anticipated price movement does not occur within the expected timeframe.
There you go, straddles and strangles defined and ready for you to act but face it folks, these strategies are not for the faint of heart. It takes time, energy and many hours of timely instruction to learn these option strategies and more. Interested, let me know and we’ll set up a One-On-One tutorial course that fits. Just send me an email to get started at info@tickeredu.com and you’ll be on your way. That is where I’m heading as I post this article. It’s time to teach someone to become a better investor and trader. I hope next time it will be you.
One more tidbit before I run. Have you been watching the world? Seasonally, and in the case of Silver, technically, there’s a bit of change taking place. Oil supplies are a bit less than expected, China seems to be improving and inflation worldwide is on the rise. I’m thrilled with my core positions as it is only a “matter of time” before interest rates come down but in the interim copper and silver, the “poor man’s” metals will go higher. No one has a crystal ball but if you have been reading, listening and acting on what I’ve written over the last few weeks you’d be happy. I know many who have and look forward to many more joining the “flock” learning how to just become the best “damn trader or investor” they can be.
I had the pleasure last night to watch a recording of the tribute to Freddie Mercury. It was filmed years ago and featured David Bowie, one of my favorites. I never got to see Queen live with Freddie Mercury, something I regret as he was a tremendous talent. I did have the opportunity to see Bowie and was not disappointed. He was a master and his lyrics were inspiring. Times, they are a changing and between Bowie and Dylan it makes sense to listen and hear the “change”. In the United States this November we have a “change” election coming but before then, the shape and overall direction of geoeconomics will rule the entire globe. Keep your ears and eyes open. It’s important.