6 Day PFE Short Straddle Option Strategy

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Short straddle: In tonight's video update, we're going to go over just the two quick trades, we had on Tuesday, the 24th of November. The first trade was a closing trade in Pfizer. Now this one is interesting because honestly, we were only in this, trade about six days. This is the original opening trade that we had back on November 18th.

Now we went ahead and closed out of this trade. You can see that implied volatility dropped from basically the 68th percentile down below the 50th and that helped allow our original $216 credit to now come in a little bit more and become a $160 credit.

So this is just nothing more than just systematically taking money off the table now that implied volatilities dropped and we took a nice little profit of $56 on this. Again, just trying to turn our account as quickly as possible with short, small, profitable trades. As many as we can.

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So that was the trade in Pfizer, and again it's mainly because of that drop in implied volatilities over the last couple of days that helped allow this trade to mature a little bit more. You can see, the stock moved quite a bit on us over the last 6 days. But it wasn't the stocks actual price movement that hurt us.

In fact, it didn't hurt us nearly that much at all because that drop in implied volatility allowed our position to come in a little bit more. The one trade that we did enter today was a new opening trade in Solar City. We went ahead and sold the strangle right around the market in Solar City.

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In January we went out to the 36 calls down to the 20 puts. Both of those strikes give our probability of success around 72%. Nice high implied volatility rank and a neutral outlook in Solar City. Now again, as I mention in the comments down here below, you can see if you wanted to do the Iron Condor, you can buy the 37 calls and buy the 19 puts.

Now, of course, doing the Iron Condor is not going to give you nearly as much credit as just doing the outright strangle. The wider that you go with your call and put purchases on either side, the higher your credit is going to become.

The more risk that you take by widening out your strikes and your spread on either side with an Iron Condor, the more credit that you're going to take in and likely the more profitable you're going to become long term. Solar City again had a huge drop after earnings.

We played the move after earnings, but now we're getting back into the stock. Nice high implied volatility. It's been consistently high, but it does fluctuate a little bit. It's been up around 100 then it will come back down to 50 and then go back up to 100. We're hoping that we are catching it on the down move.

Again, just trying to play it as neutral as possible right now. You can see with the stock right now trading about 28 1/2 or so. Our short strike on call side is out here at 36, out above the market around the 15% probability of being in the money. Then down below the market, you can see our short strike at 20 around the 20th percent probability of being in the money.

But again, our credit of $1.30 brings our break-even point just that much further out on either end, so that's really how we get that higher probability of success than these strikes may be leading on to allow. If you wanted to, again like I said, go back in and buy the 19 puts you could do that. Make it risk defined. You could buy the 37 calls.

That would make it risk defined. You're not gonna take in a lot of money by doing the Iron Condor, but you're only going to take $90 of risk vs. maybe a couple of hundred dollars of risk that we're taking with this particular trade. It's all relative. It's all equal, fair, balanced market efficient stuff.

As soon as you define your risk you're going to obviously take in less money in overall credit because you could potentially lose much less money then we could if something crazy happens with Solar City here. Again, for us, long-term we know numbers are gonna play out to work out in our favor.

Statistically, that's how we've shown it over the last five and a half years. We know that these strangles and straddles not only have the highest win rate but also have the highest average profit and loss long-term for us. So that's where we're going to continue to play as much as possible.

As always, I hope you guys enjoy these videos. If you have any comments or questions, please let me know. Add them in the comments section right below this video. If you're watching this video somewhere else out there online on YouTube or some other channel out there, you just have to understand that these videos are sent out to our members the same day that these trade alerts are made.

But there made available to the public about 20 to 30 days after they are sent out to our members. So the only way you can get real-time trades and this video that goes with it every single night is to sign-up for a membership at OptionAlpha.com.

Until next time, Happy Trading.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.