QuantitativeExhaustion

Trade Deep OTM Strangle Options with COG Channel Squeeze

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I've used LazyBear's COG Channel for several strangle trades this past two weeks with exceptional returns. A strangle option is simply buying puts and calls with the same expiration. You purchase a strangle when you don't know direction and want to play the rise of volatility ( vega             , IV) for each direction.

Chart Indicator

COG Channel Squeeze is simply when you see a number of the blue crosses lining up.

I was able to make more than a 6,000% return on my put options, because the squeeze was leading up to earnings date.

More Examples Below. *Check out YUM for a possible play a week or two before 2nd Quarter earnings July 16, 2014.
snapshot


being a primary volatility trader, I'm more focused than ever hunting for volatility. Here is an example of a stock that could multiple quickly by years end and into early next year. BIOD Biodel Inc. BioTech company
+3 Reply
guidoisot QuantitativeExhaustion
thank you JR (... by teh way , .. . is this nickname you have adopted, perhaps somehow related to the famous JR of the Texan oil family of the famous TV series of quite a few years ago?)
anyway, right now there is FDX which is almost double topping with a clear negative divergence compared to the TRIX indicator.
I have the (only gambling, unfortunately) impression that FDX could be a good candidate for a retracement in the next days after earning releases in the coming hours.
Is this a play you would consider interesting? and if so how would you play it with deep OTM put options? or do you think it could work out better with an OTM put bearish calendar spread?
Thank you very much, Best, bye.
+2 Reply
Hi,
interesting idea! So far I have been hearing only about selling pre-earnings volatility … not buying it. However, would you please share some more info on this technique you apply?
Before earnings, you buy puts and calls deep OTM, expecting to profit from big changes in prices after earning releases. But I understand that before earnings volatility increases, whereas just after earning releases it drops dramatically. How do you avoid buying just short term volatility? I would think market makers do know well how to price it to their advantage, so how long before earnings (few weeks? several months?) do you purchase these deep OTM options?
How far OTM are the strikes you select? what delta do you choose? or what other criteria do you use to determine their optimal strikes?
Do you select only those stocks which historically demonstrated higher than avg price swings just after earnings? or those stocks with highest earnings surprise rates? how and where do you search for these candidate stocks?
Any numerical example you can post here among the 6000% trades you mention?
Thanks. Best. GT
+2 Reply
Keep it simple.

1.) Hunt for Volatility using measures such as COG Channel and Squeeze Momentum Indicator.

2.) Look for possible targets by trendlines or Fibonacci support resistance. You can also consider price targets from chart patterns, such as cups or V patterns. Also think about how long it might take to hit this target.

3.) Give yourself time for your target to hit. Always go over by next OTM strike price from your target, unless you give your self more time (less risk) than bump your OTM strike to next level to gain more profits.

4.) If your option is in-the-money and your stocks momentum is still moving in the direction you wanted, roll the option and MAKE MORE MONEY until momentum shifts.

Now back to step 1, this should take up 70% of your time. Looking for Chart Patterns or trendlines should makes up 25% of your time. Picking options shouldn't take much more than a few mins. Checking in on your trade one-two times a day after you've made one should only take a few mins. If you're playing more than one option at once, your probably GAMBLING, not investing.
+3 Reply
JR, are you having trouble unloading the options on the wrong side of the trade or are you keeping and allowing them to expire?
+1 Reply
I always buy insurance and play both ways. So there is no wrong side. I'll take a 100% loss on the wrong side, if I know I'm going to get a 50+ move in Implied Volatility and a 300%+ return on the winning side.
+3 Reply
LEONES PRO QuantitativeExhaustion
Hi JR i haven't seen you for a while!
+1 Reply
Yeah, been busy. What are you looking at now for a trade?
+3 Reply
LEONES PRO QuantitativeExhaustion
not sure, missed few nice ones because I was busy with other stuff..looking at crude and heatiing oil at the moment
+1 Reply
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