How to use combo options to trade earnings season?
Combo options are option trades constructed from multiple contracts of differing options. The combinations enable more precise risk management techniques, offer the potential for higher returns, and reduce the margin requirement.
In the upcoming earnings season, what combo options are recommended to use?
As the broader market $S&P 500(.SPX)$ already dips too much, the probability of the plunge in this earnings season get lower. The bullish combo strategy can offer insurance on top of “sell put“.
1) Bull Put Spread
Imagine you believe a stock won’t go down too much. In a bull put spread, you:
Sell a Put Option: You sell a put option because you think the stock won't fall below that price.
Buy Another Put Option: You also buy another put option with a lower price, acting as insurance.
Maximum Loss: Limited to the difference between the two strike prices minus the premium you received.
Maximum Profit: You earn the difference in the premiums of the two put options if the stock closes above the higher strike price at expiration.
2) Bull Call Spread
Picture this: you expect a stock to rise, but not significantly. In a bull call spread, you:
Buy a Call Option: You buy a call option with a lower strike price, indicating your expectation of the stock's rise.
Sell Another Call Option: You sell another call option with a higher strike price.
Maximum Profit: It is limited to the difference between the strike prices. If the stock rises above the higher strike, your profit is capped.
Maximum Loss: If the stock falls below the lower strike, your potential loss is limited to the premium.
However, for stocks with high volatility $Netflix(NFLX)$ $Meta Platforms, Inc.(META)$ $Tesla Motors(TSLA)$ on the earnings day, straddle and strangle are better choices.
Options Straddle vs Strangle: How Do They Differ? - projectfinance
How do combo options work?
What combo options do you recommend to trade upcoming earnings season?
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🌟🌟🌟Options are a great way to make money even in down markets. However Combo Options take it a step further by becoming more precise and reducing the margin requirements.
Use Bull Put Spread if we believe the stock will not fall below a certain price. Use a Bull Call Spread if we believe that the stock will have a limited increase in its price.
When the stock price is volatile, use Straddle when we are unclear what direction the stock price might move. Use Strangle when it is likely that the stock will move one way or the other but we want to be protected just in case.
In the hands of a experienced trader, Combo Options strategies would help him to maximise profits. However a beginner needs to tread carefully when using Options strategy as it may result in more losses.
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Below are some recommendations for trading combo options during earnings season:
Choose stocks with high implied volatility. Implied volatility is a measure of the market's expected price movement for a stock. Stocks with high implied volatility tend to have bigger price moves, which can make combo options more profitable.
Use options with a short expiration date. Earnings reports are typically released after the market closes, so you will want to use options with a short expiration date to capture the price movement immediately after the release.
Manage your risk carefully. Combo options can be complex and risky, so it is important to carefully manage your risk. Consider using stop-loss orders to limit your losses.
購買另一個看跌期權：你也購買另一個價格更低的看跌期權，作爲保險。
最大損失：限於兩個執行價格之間的差額減去你收到的溢價。
最大利潤：如果股票在到期時收盤高於更高的執行價格，你將獲得兩個看跌期權的溢價差額。
I love straddle on my favourite stock or man [Happy] but i will have to 100 own 100 ot the stock like $JPMorgan Equity Premium Income ETF(JEPI)$
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