As I am writing this, it is already Aug 23.
For those who are following me, you would realised that I didn't have a blog post in Jul 23. Well, the reason for that is because Jun/Jul was an earnings seasons, so there weren't many opportunities for me to get into.
At the point of writing, it is now 3 Sep 23 - so as usual, it is time to take stock of how much cash flow we have collected in Aug 23.
The reason why I am doing this is to (1) document my journey and (2) to inspire others on this journey as well.
If you are ready - then let's dive right in.
In the month of Aug'23, I collected a total of $773.00 (these are all closed trades, so its all realised profits here).
Here's a snapshot of the trades which were closed.
Reflection
I closed a total of 2 trades in the month of Aug'23 and both were profitable.
If you noticed - In this month, I sold a Strangle spread. A strategy that I adopted to profit even during earnings period. With the WMT trade, I collected $237 and paid back $120 to close the trade. With two options, that is a profit of $234.
What is a Short Strangle
A short strangle is where I sell both put and call options. This works best before earnings as there is a high implied volatility. I typically look for IV more than 30 in this case.
The reason why this works is because, when we sell options, we are also selling volatility. Especially, before earnings, there will be a huge volatility spike. This is because the market is not clear where the stock price might move. This uncertainty is priced in the options, and I can collect even more premium during such periods.
The key concept here? Sell high, buy low.
After the earnings, you will see a tank in implied volatility. This is because, the earnings is announced and there is less uncertainty now.
In the above graph, you can see that there has been an increased in implied volatility just before earnings. This means that options prices are worth more. When I sell a strangle, I collect even more premium.
Right after earnings, the volatility drops drastically. This means that options prices are worth lesser.
This was exactly how much strangle option turned out.
Considerations When Selling Strangle
When selling strangles, there are a few considerations.
The first is option buying power. As you are essentially selling naked options on both sides, you need to consider the options buying power required to open the trade.
The second is selection of strike price. Selling a strangle means that you are selling a put and call options. Proper selection of strike price is crucial. This is because, if the share price moves beyond your strike price, that is where your position will start bleeding.
For me, when I choose the options strike price to sell - it has to meet two conditions. Firstly, the probability OTM has to be above 75%. Secondly, the sell strike has to be protected by a resistance / support.
Conclusion
I find it worthwhile to always review your trades on a monthly basis - so that I can keep discovering patterns that works well and keep doing it.
I am finetuning all my options strategies as I do my monthly review so that I can get better and better results.
Success leave clues. Do more of what works for you and eventually that positive results compound into something larger.
Very soon, I will be sharing the strangle strategy as part of the Options Cash Flow Mastery Course. So stay tuned!
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Become an option seller and discover how to extract cash flow from the stock market even if you are starting with limited capital