Straddle and Strangle Trade Set ups

D

djack

Okay, so i ve been reading this website and done my own trades.

i tried numerous strategies.

and now i find that straddle and strangle are the most highest probability trades

some of the set up i use are :

1) trade on a stock few days after earnings.

calculate the reward and risk and make sure it is at least 3:1 .

anyone can give more point for me create a solid set-up ?
 
How are you calculating reward:risk?

Unless the underlying makes an unexpected move you generally have no edge with straddles.
The straddle option prices reflect the market's prediction of future movement and the market is usually right in the short term.
 
Quote from stevegee58:
The straddle option prices reflect the market's prediction of future movement and the market is usually right in the short term.
More...
I would say the market gets it wrong rather frequently for a variety of reasons (systematic risk premium, actuarial risk, consistency bias). You do, however, need a systematic process to find these opportunities - e.g. check out the Google earnings thread for some thoughts.
 
Quote from stevegee58:

How are you calculating reward:risk?

Unless the underlying makes an unexpected move you generally have no edge with straddles.
The straddle option prices reflect the market's prediction of future movement and the market is usually right in the short term.
More...

i have a planned exit plan like maybe 1-2 weeks from date of entry.

also backtest on the liquid stocks which has moved much after earnings .

from what i ve backtest, most i can lose is 5% per trade if i hold it over 2 weeks.

looking for more input from members here.

maybe we can try strangles . as it is chepaer and percentage of gain is bigger.
 
I like straddles on paper. Very tempting. Put them on after earnings preferably after a few days of volatility crush. Buy them low in their IV annual range. No need to predict direction and sit back and make money.

Real world they usually are priced right at any volatility level. The price of the big movers is very high. Decent winners are rare and the rest bleed you out.

Would love to hear from any consistent straddle players.
 
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