What is a reverse strangle?

wyattresearch.com - Options Trading Made Easy: Reverse Covered Strangle

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Make Your Bookie Cry And Pull The Hair By Generating $23,187

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A reverse covered strangle is a neutral strategy employed by traders who are already short a stock they suspect has neared its bottom. Traders implementing the strategy are betting on little volatility before expiration and have a slightly bearish bent. The trade is composed of a short sale of 100 shares of the underlying security, one short out-of-the-money call and one short out-of-the-money put.

2 Directions

Should the underlying fall below the short put strike, the option, of course, would be assigned, forcing the trader to buy in and thereby closing out his short for additional profit. Should the stock trade higher, however, the trader risks having the call assigned, at which point he would be obligated to sell an additional lot of the underlying and be prepared to face larger losses if the stock kept trending higher. Initiating such a trade implies that the trader is willing to take that risk. His bias is bearish, so taking on a bigger short position at a higher price is not a frightful proposition for him. Let’s look at a chart of rail giant CSX Corp. (NASDAQ: CSX) to get a handle on the strategy’s finer points. As you shorted CSX in the mid-$30s, you’re in a comfortable profit position, but of late the shares have been drifiting sideways. You’re fairly sure there’s little left to wring from the trade, but you’re open to a downside surprise. In the meantime, your broker suggests a strategy that will put some money in your pocket and reward you if the stock, indeed, continues lower. It’s a reverse covered strangle, and in early September, with the stock trading at $28, you decide to get it on. You sell one December $31 call and one December $25 put, each for $2.50, for a net credit of $500.

Break-Even and Profit/Loss Calculations

Should the stock reverse higher, you’re covered until $36 (call strike + premium received [31 + 5]), at which point the newly shorted shares (from the call assignment) would begin taking on water. Should they continue to rise beyond that level, losses would be theoretically unlimited. As to the trade’s maximum gain, it’s calculated as follows: stock purchase price – put strike + net premium received. As it turned out, in the above example things worked out swimmingly. The stock continued on its merry sideways meander for the next three months, after which it began to decline, closing at $25.55 by expiry. Both options expire worthless, and you find yourself up $5.00 on the sale of the options and another $2.45 on the short sale, which you immediately close, for a net gain of $745. Trading Note : Again, the trade is best applied by a trader who’s indifferent to either the call or put being assigned. If the put is assigned, the short is closed; if the call is assigned, he simply adds to his short position and awaits a further decline.

You won’t find this anywhere else

You’ll never read about this powerful trading strategy in the Wall Street Journal. Or see it discussed on CNBC. 99 out of 100 brokers know nothing about it. Yet this nearly risk-free trading system has been able to turn $330 into $3,300. And it’s been put together by one man who wants to share its secrets with you. Discover them right here.

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How much do beginner options traders make?

Average Salary for an Options Trader Options Traders in America make an average salary of $110,139 per year or $53 per hour. The top 10 percent makes over $185,000 per year, while the bottom 10 percent under $65,000 per year.

zippia.com - What is An Options Trader? | Career Path and Overview - Zippia

An options trader is a financial professional who works with the stock market. They work with clients and help them to invest in different stock options, which are contracts that give an owner of the stock the right to buy or sell the stock at a fixed price for a certain period of time. Options traders may work exclusively for themselves or a company. Options traders must be extremely knowledgeable and skillful when it comes to the options market. Trading in options is often a lot riskier than trading in stocks, as options have a greater potential for large losses than traditional stocks do. This means an options trader must be savvy on the options market and be able to perform market forecasting that can help limit a client's risks and maximize their profits. Options traders come in four different categories. Retail investors are options traders who buy and sell options with their own money for profit. Industrial traders are options traders who perform the job for large financial entities like mutual funds and hedge funds. Broker-dealers facilitate option trades on behalf of a company and its client base. Market makers are required to make bids and offers on the options traded on specific securities; therefore, market makers provide liquidity in the options marketplace. Though it is possible to be a self-taught options trader, many who work for large financial firms possess either a bachelor's degree or master's degree in finance, economics, business, or another related field. Many also have to pass complex financial exams to gain certifications in the field. Examples of these exams include the Securities Industries Essential exam, and the Series 6 and Series 7 exams.

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