Last Update: August 2021

The long straddle is a great trade for a variety of conditions. I just put out a video on a straddle on earnings so decided to write some basic rules so you can practice.

If you want to dive into further details on the Straddle options strategy and also access other 30 strategies with theory videos and PDFs to download, access the Tackle Trading Playbook here (PRO Members only).

Theory

• The Straddle is generally used when we anticipate profiting from a strong movement in a particular stock or asset over a short period of time.
• The structure involves BTO calls while at the same time BTO an equal number of puts with the same expiration date.
• This can also be an earnings trade where we often see an increase in implied volatility the prior 4-6 weeks before the expiration.

Earnings

• Look for stocks that are trading over 30.00 a share and have a history of increasing volatility prior to earnings and move at least 15% up or down, 30 days prior to earnings.
• Identify the past 4 earnings to ensure proper expectation on volatility and price movement.
• Enter the position 4-6 weeks prior to the earnings announcement.

Technical Bias

No technical Bias.

Options Greeks

• Type of Strategy: Vega
• Delta Rule: BTO ATM Call/Put with Delta closest to .50
• Theta Rule: Earnings – Buy 3-4 months of time
• Gamma: Less than 14 days. Only trade this as a hedge on credits or a gamma play on economic reports.

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