Options are among the most flexible financial tools. They allow you to make profits in both ups and downs of the market and are ideal to satisfy different risk attitudes. The greatest advantage is that, using suitable strategies, you will no longer have to bother determining the market direction.
Especially for small investors, trading stocks can be hard. Few stocks in the portfolio make it difficult to adequately diversify. Each stock you trade necessarily has to follow your expectations about price. And yet, who has not experienced just getting a position in the portfolio that quickly made us doubt our judgement…? Often prices take contrary trajectories, which may or may not be short lived. Traders need to figure out what is the right time to close the position: sometimes they close too early; much more often they unfortunately tend to wait too long hoping for a revival of the quote - foregoing other profitable opportunities. Ideally one would know in what direction the wind is going to blow more strongly, but this is a difficult call to make.
Options can take away lots of the worries about the direction of prices. With a strangle you will be able to approach the stock exchange in a significantly more relaxed manner. A strangle is a prescribed combination of call and put options on a specific stock. Whatever the price trajectory of the stock underlying the strangle, you will be able to make profits from the call option if prices go up and from the put option if prices go down. You will make the most profits from large price changes. We have developed strategies that give you the opportunity to maximize profits of strangles, and we carefully shortlist for you only stocks that have moved as much as possible in strong trends in the past.
A popular strategy followed by traders is to purchase stock options of companies that are about to announce quarterly earnings hoping to exploit large price movements. Strangles too give the opportunity to profit of such large price movements that follow the announcements of quarterly earnings. Our team identifies optimal strangles that have a long expiration date. These strangles always include one or more quarterly announcement days, and you will not miss on these profit opportunities!
On January 6th, 2021 our market scanner finds a new setup for buying a strangle in the chart of the stock AEO (American Eagle Outfitters, Inc.). We propose the purchase of call options expiry August 2021 and a strike price of $ 30 and put options with the same expiry and a strike price of $ 13.
The stock price continues to move in an uptrend and after 4 months the price of the strangle has risen from $ 1.80 to $ 9, the profit of the position is 400%.
On June 13th 2017, our strangle scanner located a suitable setup for our trading strategy in the SC (Santander Consumer USA Holdings, Inc.) stock chart. A strangle was placed with call options strike $ 13 and put options strike $ 10, expiry January 2018.
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Some time later, the stock quote reached the high at about $ 19, the profit of the strangle position is about 200%!
The price of the call option rose from $ 0.85 to $ 5.50. The price of the put fell to $ 0.
This gives the following result:
The profit is $ 760 (223%).
On July 11th 2017, our strangle scanner located a suitable setup for our trading strategy in the PGR (Progressive Corp.) stock chart. A strangle was placed with call options strike $ 49 and put options strike $ 39, expiry February 2018.
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Some time later, the stock quote reached the high at about $ 58, the profit of the strangle position is about 500%!
The price of the call option rose from $ 0.70 to $ 9. The price of the put fell to $ 0.
This gives the following result:
The profit is $ 2.280 (542%).
We scan the market daily for stocks which are about to launch a strong movement. The direction of the future movement cannot be predicted. In order for us to be able to use both possible directions we place a strangle.
Volatility is a decisive factor in our strategy. Only when this is at a low level in the short term is the stock shortlisted. Our scanner, developed independently, also uses some other tried and tested indicators to further limit the results. Moreover, a sufficient volume of trade in the stock is of great importance. This is the only way to guarantee that the relevant options also display sufficient volumes and narrow spreads.
The quotes for the basis value must display a low margin over the course of several days but, at the same time, must have been subject to large price movements in the past.
Stocks which move in only one trading range over years are not suitable for our strategy. The probability that a long continuous trend will develop is only very slight. We would under no circumstances recommend stocks such as FWRD:
On the other hand, stocks such as AAPL are extremely suitable. Signals regularly appear which are followed by longer and strong trends:
For the following reasons, we prefer options which are quoted out of the money:
- we want to trade small positions only but to spread them widely
- leverage is better than with options which are quoted in the money
- we require at least 2-3 options for sound money management
- we do not need to concern ourselves at the beginning with the correct positioning of the stop loss
- even in the case of a total loss of the position, for whatever reasons, the size of the loss is limited
- at the beginning, the options hardly move at all, so we have enough time to order and to get low limits filled
There are various possibilities for being able to successfully trade a strangle position.
The least stressful variant is simply to sell the total position when it has reached a profit of 30%. Within a period of almost 8 years, 95% of all positions have attained this! Seen over the whole year, you can make a healthy profit in this way – even if it does occasionally contain a loss position. Many of the funds administered by so-called professionals can only dream of a performance such as this!
If you have only a limited amount of capital at your disposal then you should decide for this variant. This also applies if you have indeed more capital at your disposal but want to utilize this at very low risk.
Using a second variant, profits can be even higher. Nevertheless, 75% of all positions entered into achieved a profit of 50%! in this case, it is necessary to buy several option pairs. In a profit scenario, the options are sold on a staggered basis. So, for example, 3 option pairs can be sold at 30%, 50% and 80% profit, leading to an excellent average profit. Naturally, the administrative expenditure is greater. You have to watch the quotes closely and place orders frequently. In the case of the last option pair, the risk of being able to achieve the desired 80% profit at all is naturally somewhat higher. That succeeds in "only" almost 54% of all positions. It is therefore necessary to provide this last option pair with a stop loss and, for example, to protect at 30% profit.
If you are more inclined to take risks, then you can buy an even greater number of option pairs. These are sold on a staggered basis and a small residual position is held for as long as possible. In this way, you can remain in the trend for an extremely long time and achieve a profit of several hundred per cent. Naturally, the effort involved here is correspondingly high. The positions need to be observed on a daily basis.
Various events can occur before the expiration date of a strangle which further maximize profit. Therefore, if the stock quote starts to rise, the longs can be topped up, that is to say, further calls are bought.
Furthermore, for example, a partial sale of calls can take place after the stock quote has risen. A small part of the profit is invested in the opposite position, that is to say, puts are purchased. The stock quote very often sinks again after a rise and the puts will yield profits very quickly. If the stock quote falls to the bottom line of the upwards trend, the puts are sold and calls are again repurchased.
You can find a comprehensive example of sales and repurchases here.
During the bad phases, the movements in the total market are very slight. This was the case in the US market at the beginning of 2014 and also in the first months of 2015. During these phases, it is advisable to follow a low-risk strategy. The positions are closed when a profit of 30% has been reached. If a good phase develops – that is, if the market is moving in an upwards trend or (what is even better) if it collapses strongly – the positions are simply held for longer. In this way, significantly higher profits are obtained with ease.
Only a relatively small amount of capital is invested per position. It is important to spread the capital widely, for only in this way can you increase your chances of having exceptionally good ongoing values in the portfolio. The strategy has both good and bad phases! If you were to invest a very large amount of capital in only a very few values, and if these very positions subsequently did very badly, then you would have to reckon with a total loss. Wide spreading over as many values as possible reduces this risk.
After the expiry date, it is then clear whether a position has achieved 30%,50%,80% or 100% profit. Part positions can achieve profits of several hundred per cent. However, these figures cannot be used for statistical purposes.
A trading strategy should be simple and understandable. Profits should be constantly flowing.Our strangle-strategy is ideal for low-risk trading.
Our trading recommendations are very carefully selected and tradeable even with very small accounts. The direction in which the quotes move is completely unimportant. Even the last slump in the markets caused by the financial crisis brought excellent profits to our strangles
As the holder of a stock position, you have to live with the constant danger that the value of a stock can suddenly drop by 20% or even 50% overnight. The reason for these extreme quote losses is mostly a profit warning. On the other hand, as the holder of a strangle position, nothing better can happen to you. The quote of the put option will immediately shoot up and bring you good profits.
Using the strangle strategy, you are guaranteed not to have any problems with sleepless nights! Our subscribers confirm again and again that they have never yet found a more pleasant and stress-free type of trading.
A subscription is money well invested. You can participate in a strategy which has been developed and continuously improved over a long period. Numerous experiences, both positive and negative, have contributed to the development of our market scanner and you can profit from this fully. Imagine you had to examine 5,000 stocks for buying opportunities every day. That is completely impossible on a manual basis. Using our strangle scanner, we can take over this task for you. With our newsletter, you have the opportunity to act more successfully on the stock exchange. We will also naturally help you in other situations, e.g., in establishing a portfolio or in placing a correct order. As a subscriber, you have at all time access to a password-protected area of the website, in which you can find numerous tips and experience with regard to trading in options.
Trading in front of the PC is quite a lonely job. Contact with other traders leads to an expansion of personal horizons. Dealing with the questions, suggestions and criticism of other traders prevents professional myopia and substantially improves trading skills. Over the course of time, this leads to a continuous improvement in strategy.
With a single option, you control 100 stocks. If a stock costs 10$ and an option 1$, then purchasing this option entails using only 10% of the capital which would be necessary for the purchase of 100 stocks. Therefore, the purchaser also risks only 10% of his capital!
You should already have experience in trading with stocks, CFD, certificates or warrants. You need a portfolio with a broker who charges you very low trading fees, for example, Interactive Brokers or LYNX. The purchase of 6 options with Interactive Brokers costs only about 3 $. Orders with LYNX are, on average, 60% cheaper than with other German brokers. Real-time quotes subscribed from a broker are not absolutely necessary with our strategy. It is enough if you use the cost-free quotes which are delayed by 15 or 20 minutes. Nevertheless, working with real-time quotes is naturally significantly more convenient.
Furthermore, you certainly need the necessary calm and serenity! Single positions can indeed remain for several weeks in the portfolio without moving by one cent. That is no reason for a premature exit. Large quote movements can occur at any time.
A standard PC and a normal Internet connection are sufficient. Trading can be carried out without a hitch even with old 56 k modems. One monitor is sufficient. Success in the stock exchange is not necessarily proportional to the number of monitors!
The signals appear irregularly and are very dependent on the general market situation. In quiet phases, the scanner delivers many signals; in volatile and hectic phases, less signals. This results in the great advantage that you can always place your purchase orders on quiet days and the quotes do not alter. On average, you will receive several signals per week and, during the high phase, even several per day.
All signals are included in a sample portfolio and are regularly updated up to the complete closing of the position. In the same way, all later partial purchases and sales are included. As a subscriber, you will receive a password and have unrestricted access to the sample portfolio and can follow all activities. Moreover, you will find many useful tips in the subscription area for daily trading with options and an archive of all older issues in zip format. In the sample portfolio, relatively small positions are traded intentionally, with an average of only about 150-250 $ per value, which means that single trades remain clear. If you have more capital at your disposal then you can also trade twice, five times or ten times the amount of options without any problem.
The expiration dates and basis prices of the options are suggestions only and you can deviate from them within certain limits. In the interests of sound money management you should, however, always buy several calls or puts. With 6-10 of them, a staggered sale in the profit zone is easier to achieve than with only 1 or 2 of them. You can also deviate on a longer term. However, in this case, you have to be prepared to accept somewhat higher option quotes.
Avoid ordering stop loss before a strangle is in profit. It is not for nothing that we select long to very long expiration dates in order to give the basis values time to develop a trend. Large bid-ask spreads could determine the stop loss to sell the strangle at an unfavorable quote. Temporary falls in stock volatility can cause small losses in the strangle value. For strangles that we advice, this should not be a reason to close the position before price movements produce profits.
The options are also split. In the case of a 2-1 split, the basis price is halved. If you had a call with a basis price of 100$ in the portfolio before the split then after the split you posses two calls with a basis price of 50$.
Suspected takeovers are very good for our strategy. In most cases, the basis values rise strongly immediately and our calls profit from this. However, announced takeovers are poison for options and the fair value sinks to zero. If you hold the position of a takeover candidate and the option is not in the money, then sell it immediately. After the completion of a takeover, the options receive new abbreviations and simply continue on. In the first days, the spread is often extremely wide since the quotes have to be re-adjusted. In this time, you will see – in addition to the abbreviations of the option – the description "adjustment basket". In rare cases, this transition phase can last several months and your capital is blocked. Therefore, it is better to exit before the takeover and to use this freed-up capital for new signals of other values.
The method of including an option in the trading platform via basis price and expiration date is much simpler than typing in long and complicated ISIN. A typo can quickly slip in. Instead of three zeros, you unintentionally type in 4 zeroes. The list of the possible sources of error is long.
With only a few mouse-clicks, you can also find the suitable option without ISIN.
First of all, enter the abbreviation of the relevant stock in the column “Underlying”, in this case CPWR. Confirm with enter.
A menu opens where you click on “Options” and then the suitable expiration date with month and year.
By clicking on the year date, a new window opens in which you select the stock exchange (normally always SMART), and then the suitable basis price, and then call or put. At “Symbol”, you will also now see the ISIN of the option.
By clicking once on the “OK” button, the option is included in the trading platform. You can now see the latest quote, as well as the bid and ask with the corresponding quantity. The order of the columns can vary according to your own settings.
As a subscriber to the newsletter, you can count on comprehensive support. No matter whether you need help in opening a portfolio with a broker or assistance in the activation of real-time quotes or in placing orders, we are (almost) always there for you. Within Germany, we will gladly call you back on your landline or provide you with consultation via Skype-chat. It is even possible to show you live and directly on your PC how to, for example, place a purchase order or how to set up a stop loss. For this, you need only install the cost-free teamviewer tool and we can work together via Internet on your own PC.
Options are the most versatile trading instrument which have ever been developed. As a trader, you can profit from use of the unique non-linear behavior of the option price and the market movement in the most varied way from rising or falling markets.
The simplest method is to achieve profits with a call when stock quotes are rising and with a put when stock quotes falling. Because of the very small capital expenditure, the risk of loss is confined to narrow limits.
Newcomers to option trading always ask the question: “Why is the quote for my call not rising although the stock quote is rising?” You can find the answer here.
Just as you insure your house or your car, you can use options to protect your stock portfolio against falling quotes.
To put it quite simply, the buyers of options have rights and the sellers of options have obligations. The buyers of options have the right – not, however, the obligation – to purchase the basis value (the stock) at a certain price (basis price) (if they hold a call) or to sell it (if they hold a put). This right applies up until the date of expiry.
As the seller of the option, you have the obligation to deliver stocks to the purchaser of the option or to accept them from him.
The expiry date is the third Friday of the month.
The price of an option depends on a number of factors:
- call or put
- quote of the stock which serves as the basis value
- strike price
- expiration date of the option
A stock option normally refers to 100 stocks and, in exceptional cases, to 10 stocks. This means that if you purchase an option at a quote of 1$, you have a position of $100 in the portfolio.
There are 3 directions which a market can take – up, down or to the side. Being able to estimate the potential market direction is very important for the use of options.
If the market rises, you could buy stocks, buy calls, but also sell puts. Do you have other possibilities? Of course! The combination of calls and puts offers a huge range of different strategies with which you can narrowly limit your risk of loss and enormously increase your chances of profit.
Options with an expiration date of more than 9 months are called LEAPS (Long-term Equity Anticipation Securities). LEAPS offer the trader the significant advantage of having a great opportunity for a strong and long-term market movement within the long expiration date.
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In the newsletter, the planned strangle is described in detail, you get the data on strike price, expiry, entry price of call and put and a proposal for the number of options. In addition a chart of the stock with marked profit thresholds or price targets and some indicators. Also, chart of the options, so you can calculate how the option price at a certain stock price will be.
On average, there are several issues per week, with more signals in quiet market phases and fewer signals in hectic phases with high volatility.
You are welcome to convince yourself of the high quality of our trading signals. Simply accept our cost-free and completely unbinding offer of ordering some older issues of the newsletter. To do this, please enter "Test" in the subject line. If any queries arise in connection with reading and following the signals we will be naturally happy to provide professional advice.
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Martin Bauernfeind Polenzer Linden 5 D-01665 Klipphausen Germany
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