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BULL OR BEAR,
WE DON'T CARE!
Resource Guide for Trading Without Predicting
Market Direction

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Disclaimer
Trading and Options both involve risks and are not suitable for all. Prior to
buying or selling an option, you must receive a copy of Characteristics and
Risks of Standardized Options. Copies are available from your broker, by
calling 1-888-OPTIONS (USA), or at www.theocc.com.

OptionPundit® is NOT a Registered Investment Advisor and is not liable for any
profit/loss occurred due to investment decision made on the basis of this
presentation. The information in this presentation is provided solely for general
information, possible education and entertainment purposes. No statement
should be construed as a recommendation to buy or sell a security or to provide
investment advice. For detailed legal notices and disclaimer, please
visit https://www.optionpundit.com/pages/terms.

Past performance is not indicative of future results.

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Trading Corporate
Earnings Using Options

LONG STRADDLE STRATEGY

The long straddle option strategy is a market neutral options strategy that benefits
from volatility increases and/or significant up or down move in the stock price. It's
doesn't care whether stock is going up or down as long as it is moving.
Since corporate earning announcement tends to swing stock prices in a big
way, we can take advantage of the earnings announcement is by creating a
Straddle options strategy.

Straddle can be created by buying a Put and Call Option:

Same Underlying
Same Strike Price
Same Expiration
If however, the strike prices are difference, it called a Strangle.

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Building a Straddle
Let's assume a stock XYZ is trading at $100 a share.
Buy 100 call for $0.50
Buy 100 put for $0.50
The net amount spent for this trade is $1.00 ($100), the premium from both
long options positions.
The best case scenario for a long straddle is for the stock to completely
crash down or rally up. If stock XYZ doesn’t move, the long straddle is going
to lose money due to time decay

Key Considerations Key Point

Maximum Profit Unlimited

Maximum Loss Cost of Options

Risk Level Low

Best For Anticipating a significant up or down

move in a stock

When to Trade Before earnings announcements, FDA

deadlines, etc.

Number of Options 2 legs

How Build it Buy call option + Buy put option

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Straddle
This is how a Straddle profit & loss profile look like.

Strangle
This is how a Strangle profit & loss profile look like.

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KEY POINTS

Crashes and Rallies are Good

We don't care if the stock goes-up or goes down. The more it goes up or down,
the better.

Time Decay Hurts

Long straddles lose money every day due to time decay.

It Pays to Know The Past

While it is good to trade in anticipation of a good move, it is a good idea to see
what happened in the past. If you would have taken the trade in the past, would
that have been profitable?

Learn to Earn More

You may want to learn it properly, practice on paper before diving in with real
money. You don't want to waste time & resources in making avoidable costly
mistakes.

There are Many Applications

Trading straddles or strangles before earnings is just one of the many ways. FDA
announcement is another. Actually, it can be used in situations when you expect
a large price move but don't know which direction it will be in.

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