6. Long Volatility Trades
Earnings announcement returns are extremely difficult to forecast, making directional bets risky. Will the stock price spike up 5%? Or will it tank 5%? However, with the help of options, you can trade corporate earnings news without having to guess whether the news will be good or bad. Such strategies, straddles or strangles, involve simultaneously buying or short selling calls and puts of the same stock. Whether the earnings announcement returns are positive or negative, the returns will be favorable to one leg of the trade and unfavorable to the other, so the direction does not matter much. Instead, the profit-ability of straddles and strangles depends on the degree or magnitude of price changes (not the direction ...
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