A Long Strangle is an option strategy that benefits from a rise in implied volatility and / or a large movement in the underlying stock.
The trade involves buying an out-of-the-money put and an out-of-the-money call with the same expiration date.
Today I want to walk through a trade that I found via CMLViz which worked out quite well. The trade was based on a trigger for a volatility and range expansion.
Here was the setup:
Date: August 20, 2020
Current Price: $77.22
Trade Set Up:
Buy 5 SBUX Sept 4th, 78.50 calls @ $1.15 (40 delta)
Buy 5 SBUX Sept 4th, 76.50 puts @ $1.10 (40 delta)
Premium: $1,110 Net Debit.
Let’s take a look at how the trade progressed.
After starting slowly, the trade went BANG! On Aug 25th as SBUX jumped over 4% which is exactly the type of action the trigger was designed to pick up.
I’ve found CMLViz is a great place to find trade ideas based on empirical backtesting and it’s amazing how certain stocks exhibit similar behaviour time and time again.
One of my favorite trades is a pre-earnings diagonal trade which I learnt from CMLViz.
With markets a bit choppy lately, it can be hard to find trade ideas and that’s where CMLViz is great because it have a lot of trades setups that aren’t based on directional movements.
You can check out my full review here.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
