Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions

Chapter 10. Long Straddle and Strangle Strategies

We ended the preceding chapter by discussing how difficult it is to predict the movement of stock prices. This is in line with our detailed discussions in Chapters 5 and 6, where we presented evidence of how difficult it is to predict market reactions to earnings surprises. This chapter discusses our main solution to this issue of predicting the direction of prices. The solution is simple: Enter options positions where you simply don’t have to predict the direction. The straddle and strangle positions we discuss in this chapter fulfill this requirement. They are volatility strategies, where we seek large movements in the stock price—without caring about the direction of this movement. These straddles ...