In this article, we shall see the three best options strategies that you can use to maximize earnings. Also, we shall see how Volatility affects options pricing. Whenever there is a product season, its price reaches the highest or may fall below expected.
We cannot be sure until we see the results. In the same way, when a company is going to announce its profit or loss for a particular term, the market tends to be more volatile.
The company may announce a significant profit or lay off depending upon the limited information with traders they trade on either very high or very low positions. Here, in this type of scenario, your understanding, your knowledge and expertise, and making the right move play a crucial role. Sometimes, options traders might approach the wrong options strategies and incur losses.
With their previous experience and expertise, some options traders earn money in the season with the right approach. So, please read the complete article to learn more about that approach and strategies and how you can also make money during the season.
We will discuss further what happens in the stock market when companies announce their reports. How to deal with the options after a company has declared its reports? What Options Strategy should you avoid?
So, let's see how to use Options Strategy after the quarterly announcements made by the company. How can you make a profit when the company announces the documents such as the profit and loss?
Investors predict the current financial health based on last quarter's financial health. This prediction may be accurate or may not. It may be possible that the company has made a profit, but there is no change in its stock price.
Understanding the Implied Volatility:
Options Traders take into consideration the last quarter's earnings and predict the stock price, and by applying some calculations and strategies, decide the next move. Finally, when the company announces its quarterly performance, there is uncertainty and extreme Volatility in the market existing together.
Now, the option traders must work fast and decide quickly how to take the next move. The reactions toward processing the information by options traders determine the upward or downward movements in the stock market.
Implied Volatility can be said as the expectation of the change in the degree of stock price. The higher the expectation, the higher movement. When there is high Volatility, the premium is also high.
Volatility Crush:
The uncertainty remains until there is no data or information from the company side, but as soon as there is any announcement, the market becomes a little stable, and Volatility naturally decreases and fades away. This natural decline in market volatility is called volatility crush.
Now, as we know how the market behaves and how it can affect the options pricing, we have to trade the options in which we are net sellers. Below are the three strategies that can help you earn money in the volatile market.
1. Short straddles:
In the short straddles strategies, the option traders believe there will be no significant movement in the underlying stock price, so they sell a call option and put an option having the same strike price and expiration date. In this type of strategy, the advantage is of eliminating the guesswork. Investors or traders are out of the bets made in a particular direction. They do not hope for a higher or lower move.
2. Short strangles:
In a short strangles strategy, options traders sell puts and a call of the same underlying asset, having the same expiration date but slightly out of the money. Option traders have a limited scope of making money, and on the other hand, the risk is unlimited, if investors are ready to take the risk, and if there is very less Volatility for a short period, they can take advantage of it.
When a trader enters into a Short strangle, he sells two options at an equal distance from the market price, one is an out-of-the-money Put option, and the second is an out-of-the-money call option. This will neutralize the impact of the directional moves of the underlying asset price. You must understand not to move in the direction of the price during the season's time; instead, stay on the non-directional path.
3. Iron Condors:
Iron condors strategy may sound a bit complex, but it's an easy way to bet safely without losing much. When an options trader enters into Iron condors, he sells a put option and buys another put option, sells a call option, and buys a call option. The traders here sell the put options with a high price and purchase those with a low strike price.
These options generally have the same expiration date or are nearby. After practicing this strategy a few times, you will get used to it. This is the best strategy as it results in credit rather than debit and pays the money as soon as the trade is executed. It keeps the trader in a safe range, regardless of the price moving upwards or downwards.
Conclusion
So, you might now be clear about the best strategies to help you make money, even in the most volatile market. If you are interested to learn more about them in detail, kindly message us using the comment box below.
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