Pro Breaks Down History’s Largest IPO

“Take some time and catch this limited replay of Ben Sturgill covering the ARAMCO IPO. I love how he breaks down his processes into easy-to-digest bites.” – Jeff Bishop

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It’s the first day of a new quarter and the stock market is on fire. With the Dow and S&P 500 hitting record highs… it’s a good time to be an options strategist.

Is it time to get greedy?

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Or is it time to pivot?

My answer: be ready for anything.

And that’s why I love options trading so much.

There is a strategy for nearly every time of market scenario…

In fact, there is an option strategy that allows you to be long and short a stock… AT THE SAME TIME.

This type of trade is considered a volatility bet, since the trader doesn’t necessarily care in which direction the stock moves… they just want it to move.

 

Sometimes, You Don’t Need to Place A Directional Bet

 

Ever look at a stock and had trouble finding the direction?

But you thought to yourself, I know this stock is going to move a lot and fast.

Well… when you’re trading stock you can’t be long and short at the same time.

Now, I specialize in options.

With options, things get a lot easier.

You see, you can actually be bullish and bearish at the same time.

How?

Well, there are puts and calls… when you combine the two… it’s what’s known as a volatility bet.

For example, check out this hourly chart in Beyond Meat Inc. (BYND).

 

This stock has been really volatile… and just looking that the chart, it’s all over the place. So let’s say you don’t have a directional bias…

 

Volatility Bets With Options

 

What can you do here?

Well, you can buy both puts and calls.

For example, if you buy puts and calls with the same strike price and expiration date… it’s known as a straddle.

Check out the profit and loss (PnL) chart of a straddle.

 

 

For example, let’s say you buy an at-the-money straddle in BYND. The stock is trading around $156… and you think the stock could have a move in either direction.

Well, if the stock stays around that level by the expiration date… you would lose the premium.

On the other hand, let’s say the stock drops by 20%… well, the puts would gain significantly in value… while the calls would lose money.

If the stock rises significantly, then the calls would gain and the puts would lose money.

Now, with the straddle, you have two breakeven points.

  • The upper breakeven point is equal to the strike price of the long calls plus the net premium paid.
  • The lower breakeven point is equal to the strike price of the long put less the net premium paid.

There’s also another way to place a volatility bet: the strangle.

Unlike the straddle, the strangle involves selecting two strike prices.

 

Another Way to Place A Volatility Bet

 

Check out this hourly chart in BYND.

 

 

Let’s say you think if BYND breaks above $170… it could have a massive run higher. However, if the stock breaks below $140… you think it could drop to $100.

Well, a straddle wouldn’t make too much sense.

This is where a strangle comes into play.

Here’s a look at the PnL chart for the strangle.

With this, you’re not buying ATM options like the straddle.

You see, with the strangle… you want the stock price to be between strike price A and strike price B.

Basically, you buy a put at strike price A and a call at strike price B.

For example, if BYND is trading about $155… you can buy $145 puts and $165 calls expiring on the same day.

Similar to the straddle, you want a big move in either direction.

Again, there are two breakeven points here.

  • The upper breakeven point is strike price B plus the net premium paid.
  • The lower breakeven point is strike price A minus the net premium paid.

Moreover, the potential loss is limited to the net premium paid.

The one thing to keep in mind is if you decide to use these strategies… make sure the stock has shown it can move in either direction quickly… typically, you don’t want to buy a straddle on a stock that has low volatility, unless it’s an earnings trade.

Now, these are just two of the many options strategies that could unlock opportunities. If you want to learn more about Wall Street’s best-kept secrets… then there’s only one place you can do that…

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