New take on a Strangle

Posted on by The INO.com Team

Today I've invited Bec from MarketMum.com to come and show everyone what she's been using to trade options in this market. I've been reading her for a while, and I was finally able to contact her so she can teach us men a thing or two! So please enjoy the article and feel free to comment with your own thoughts and opinions!

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Hi everyone,

A big thanks to Adam for choosing me to be a guest blogger on his site, I feel very honoured! Before we get into the details of my latest strategy, I think I should introduce myself a little better and tell you about myself.

My name is Bec and I'm a stay at home mum from Australia. I was introduced to trading in November 2005 and was hooked from the get go. After some success and many failures, I decided to set up a website for others out there like me, who needed information and education on how trading worked, but more importantly, see how someone else was trading the market, real-time! So I decided to place my trading diary online and thus MarketMum.com was born! I have since written a couple of ebooks and produced a charting video home study, as I was tired of the enormous prices that some so called "experts" charged to learn
this business.

I mainly use 3 strategies, sell puts with protection for income on stocks I want to own, if I am excersised and have to buy the stock, I then revert to a collar strategy, which implies buying the stock, protecting it with a put option, usually protecting about 85% of my capital, and then in addition to this, I sell covered calls over the stock for more income. This strategy works really well in a sideways market, and has worked great in the current market. The last strategy I use in between the first two, called a strangle, which is the strategy I am telling more about in the video below. I find using these 3 strategies has greatly increased my profits and my philosophy of "always being in the market", works well with the synergy they provide.

So now it is 2009 and my trading has grown from strength to strength, and I have many wonderful members of my trading diary! Now without further ado, I have great pleasure in announcing my latest strategy called, Market Mum’s Strangle Strategy!

Simply put, I am doing a strategy known as a Strangle, with my own little twist thrown in for good measure.

The Strategy involves buying a Call Option and a Put Option, at the same time, as ONE TRADE! This hedges yourself in the market either way, so the market can move higher OR lower, and we profit BOTH WAYS!

I’ve put together a Trading Tutorial on how it works, with all the ins and outs for you to watch at your leisure, as if you are anything like me, you are a visual learner, and prefer to see what is being taught to you.

I post all my trades on my blog, and from there I keep you updated of results and new trades as I place them.

I’m so excited to be able to present this latest strategy to you all today, and I hope you are as excited and pumped about it as I am! Please watch the tutorial today, but come back and comment on the Trader's Blog.

As always, I value your feedback and comments, so please leave a comment. That’s all for now, thank you for allowing me to share my story and strategy!

Happy Trading and remember…

Mum’s the Word!

Rebecca "Bec" Hilbert
Market Mum

MarketMum.com

32 thoughts on “New take on a Strangle”

  1. Hi Bec, I truly enjoyed this presentation of the work you do. I agree with you that having the Trade Triangles is a big plus for us. Again thank you very much.

  2. HI, I am an options trader from past two years and the volatilty is been very good for options trader. I purely sell options for the income and also for the hedging. Selling Calls and Puts OTM and waiting for them to expire worthless is my trading plan. Although it takes lot of effort to choose which sector you are going to play. My expertise are FX and Commodities. I also hedge my currency risk by buying call on the Currency in order to protect the portfolio size.

  3. I enjoyed the video, and think summer is an especially good time to focus on non-directional trades, because the market historically bounces around more. A couple of weeks ago I read in the newest magazine from thinkorswim (my online broker) that a good way to locate stocks that are in a low volatility range is to look for situations in which the Bollinger Bands are inside of the Keltner Channels.

    I'm looking foward to trying out your strategy this coming week. Thanks for sharing it with us.

    Alan

    1. Hi Alan,

      Thank you for your kind feedback, I hope you enjoy much success with the strategy

      Cheers,
      Bec

  5. Viewed your tutorial and found it very interesting.

    I have four questions 1) How do you scan for profitable stocks?
    2) I'm assuming you're playing current month or next expiration dates options, it the correct?
    3) Are your technicals (Bollinger, and MACD) set at default or are you using different settings?
    4) ATR - I'm not sure on how you are using this. The range that you establish - Is this where the underlying stock price should be?

    Thank you

    Ken

    1. Hi Ken, thanks for your kind feedback, I'll try to answer as best I can below;

      1. I have a watchlist setup in my charting software and I go through each stock with my indictors on so I can see any patterns that may be present.
      2. For buying options you are best to go out as far as possible, to give the trade time to work out, but yes, 30 days or more at least.
      3. I dont use MACD, but the bollinger bands are set to the period that I was taught on.
      4. The ATR is an indicator that measures the Average True Range of a stock. In other words, what range the stock has moved within a given time frame. You can do a google search on ATR and there are various explanations of it. I use it as it will tell me if the stock is likely to move in that range or not which is important in a strangle as you want to make sure the stock can reach your targets within the time frame.

      Hope this helps Ken,
      Cheers,
      Bec

      1. Hi Bec:

        Thanks for the quick response. Being a little slow I meant to ask about your stochastic - is it fast or slow.

        I'm still uncertain on the ATR. I understand ATR but I'm uncertain on how you use it. I know that you develop a range or band of 2 1/2 times above and below the ATR. Do you then add the range to the current stock price and then try to get a strike price within that range?

        Thanks again

        Ken

        1. Hi Ken,
          The stochastic is slow.
          I think I should say here that the indicators I use, such as the bb's, stochastic and atr, are only to be used to further stack the odds in your favour, and to further confirm one of the technical patterns I discuss in the video. They shouldnt be used as a basis for a trade entry or on their own in anyway. I use the calculation that my charting software gives me for a specific period. I use that figure that it gives me and times it by 2.5, to determine if the total cost of the strangle is not too expensive, relative to how the stock price can realistically move in either direction. I have provided this calculation on my Worksheet, so all you need to do is type in the ATR that your charting software gives you and the figure will be worked out automatically for you. You can then see if the cost of the strangle is under this figure.
          I hope this clears it up Ken, if not you may want to watch the video again as I explain it further there.
          cheers,
          Bec

        2. Thank you for bearing with me. This gives me another arrow in my quiver of things to make my trades even more profitable.

  6. Your video was very interesting and I haven't had much luck with trading options. I attended a two day options workshop back in 2001 for $5000 Canadian dollars and they only covered the basis such as covered calls and calls and puts and leaps but I never made money. I am unemployed right now and receiving a small disability income from the Canadian Government and I like to work but no employer will hire me. What is the cost of you course or courses? I have a limited amount to trade with. $5000 would be what I am looking to trade with and no more. I subscribed to an options advisory service and I didn't make money. I ran out of money for the options. They were advising to buy calls, puts, sell puts and straddles and strangles.

    1. Hi David,
      Trading does take dedication and I find I am always learning. I think when you decide you know it all, its probably time to learn some more! With strangles, you dont need a great deal of money to trade them, I have used as little as $1000, in the US you could use less as your options contracts are 100 shares per contract, whereas here in Australia, we have 1000 shares per contract, so to trade a strangle on the US market would be quite inexpensive I would think. I don't charge for people to view my trading diary or my videos, I do have a couple of ebooks and a charting pattern detection set of videos. I think, in your case you may need to go back to the basics and then paper trade for a little while until you understand and see how options work etc. Then, when you get some confidence back, jump into the market on a small scale and go from there. With Market Club's trade triangles, you have a huge advantage knowing the direction of a particular stock, which really is half the battle when trading options. I like strangles as you dont have to know which way the market is going to move, you just want it to move!
      Hope this helps.
      Cheers,
      Bec

  7. Either way, you are to be congratulated for your efforts. The fact that you have taken the time to build a web site, write books and design videos for us on various trading strategies speaks volumes...

    1. Thanks for your kind feedback JLT, I'm so glad I can be of help!

      Cheers,
      Bec

  8. I thought it was a very interesting video, but options decay with time and I really wonder if it's any better than following MarketClub's triangle signals, which seem to do well on a short-term basis. By short-term I mean a range of 3 to 12 days.

    For example, had you bought a short ETF like TZA on July 2nd when a large number of short ETFs were flagged by the triangle signals, you could have sold it 4 days later for about a 17% profit. Your only risk here is being on the wrong side of the trade, but with so many short ETFs being flagged that day (July 2nd), the risk was probably quite small.

    I should imagine that had you played the underlying call options for this ETF you would have done very well indeed, again relying on the triangle technology to guide you.

    I do not feel you need to buy both the puts and the calls simultaneously; rather, I think it more prudent to use other indicators or signals to help you decide which side of the trade you ought to be on. That is where MarketClub can help, and its powerful technology used to put on a trade with confidence, whether you buy or short the stock, or decide to use options. Indeed, that is the whole point of using a service like MarketClub.

    1. I agree JLT, to some extent, however everyone has their own way of preferred trading. I wish we had the Market Club trade triangles here in OZ (hint, hint Brad!), and as we dont, I have to use what strategy is best for me. Keep in mind this is just one of many strategies I use, and so far it has worked quite well. Thanks for sharing your take on it and keep up the good work!
      Cheers,
      Bec

  9. Great video! Nice, clear explanation! No trouble whatsoever with your accent:-). I'll give this a try. And I'll check out your website and blog. Thanks!

    1. Hi John,

      Thanks for the great feedback mate! Glad to know my accent hasn't put too many people off! Happy Trading!
      Cheers,
      Bec

  10. Very interesting presentation.

    I have limited myself to credit trades for the most part which does limit profits. I am selling time decay when I get it right.

    After about 6 months I seem to be making mostly small profitable trades. I made several major mistakes in the first few months which cost me a lot. On analysis this was because of greed (mine).

    I found your comments on volatility as measured by bolinger bands particularly interesting as I have not until recently paid enough attention to volatility on entering and closing a trade. Selling options I am of course looking for more volatiliy on entering the trade. Thank you

    1. Hi Christine,

      Volatility can make or break a trade, especially when you are buying options as if you buy when volatility is high, you run the risk of there being a volatility crush, and even if the stock price does move in your favour, the option can still lose value. Of course when you are selling premium, this decay works for you! If I'm selling premium, I usually will do it when the bollinger bands are flaring and the stock is nearer the top band.

      Hope this helps.
      Cheers,
      Bec

  11. Great strategies. Love you tutorial, very easy to understand.Love to learn more about selecting stocks to trade.

    Thank you for sharing with us

    1. Hi June,

      Thanks for your kind feedback, so happy to know it was of benefit to you!

      Cheers,
      Bec

  12. I have tried to get the video trial but for some reason it won't open. I have an Apple Computer but have not had this problem before.
    Cheers
    Another Trader Mum

  13. It was exceedlingly difficult to bear this video tape because there was the constant noise of her hedgehogs knocking over the furniture and that coupled with the Austrialian accent is a bit much. The strategy looks like it might be worth trying if you can spot the right times to do it - would take a bit of practice, though. Also my tape stalled out before the finish.

    1. Sorry you had such difficulty viewing the video Earl, sometimes our pcs just aren't compatible. As for my accent, well I can't do much about that mate, sorry!

  14. Long strangles may work on stocks that move enough to proffit from up & down swings. If the stock doesn't move, or moves very slow, all you do is sit and watch the value decay and you end up with a total loss.
    Short strangles on stocks that don't make big moves is a better play.

    1. You are correct and thats why volatility plays such a big role in when to enter a long strangle. Sticking to your rules when placing these trades, is a must!

  15. Have tried every which to get to your web page, as I am always interested in learning how to be a better trader. I currently am unemployed @ 64 years young, and have to trade my way into earning enough to pay my bills and take care of my family.

    So far, after 5 years of actively trading, I am a net loser and have little funds to trade with.

    Please help.

    Best regards - Michael Luss

    1. Hi Michael,

      I'm sorry to hear your trading hasn't been going so well. I would imagine your mindset is pretty rattled at the moment as well. I know in the beginning, when I had a string of losses, my mindset would be the biggest hurdle I would need to get back in line, as it can be easy to just spiral downwards. I would suggest you work on getting your mindset back on track, before you try to trade anymore. If I can help you with this, please let me know!
      Take care.
      Bec
      Market Mum

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