Options are the most powerful, profitable tool today’s traders have available.
And the key to finding sustained success in options trading comes down to managing risk versus reward. This is especially true when you get into spread strategies that involve carrying more than one open position.
That focus on risk versus reward is why you’ll never catch me using straddle and strangle options trading strategies…
Because while those two strategies have the benefit of being able to capture a gain no matter which way the stock moves, it comes with major risk.
Let me show you…
Why I’ll Never Use Straddle and Strangle Options Trading Strategies
First, for the uninitiated, we need to cover the basics.
Straddle and strangle options trading strategies are two examples of non-directional strategies.
Traders employ strategies like these when they expect a big move in a company, but they aren’t sure whether that move will be up or down.
These trades usually center around an unknown catalyst event like product reveals or earnings.
A straddle involves buying an equal number of at-the-money (ATM) calls and puts with the same expiration.
A strangle is similar to a straddle in that you buy equal amounts of call and put options with the same expiration. But a straddle uses options with different strike prices — usually out-of-the-money (OTM).
With either strategy, the trader is betting the catalyst will move the stock more than enough to offset the cost of the options’ combined premium.
The larger that combined premium gets, the larger the gain needs to be to hit profitability.
It’s an straight forward way to risk a lot of money… for a mediocre return. This is not what I consider good risk management — risking a lot for a little — when trading, and I want you to make smart decisions.
There is a better way than straddle and strangle options trading strategies, and all it takes is a little conviction.
If you commit to a direction on that same catalyst event, you can help tilt the odds in your favor by limiting your risk with a simple options spread.
For an example of how this works, let’s look at what happened when Apple Inc. (Nasdaq: AAPL) revealed it’s new iPhone…
Check out the short video below and I’ll show you how I cut my risk by 75% with an opportunity to triple my money with a simple call spread.
P.S. Do hedge funds place risky bets and cross their fingers?
Of course not.
They want profits – consistently.
That’s why they take advantage of a little-known market “error,” to flip the odds in their favor…
After learning this trick on Wall Street, I perfected a formula anyone can use to do this exact same trick…
From their cell phone!