{"id":15601,"date":"2024-05-23T17:00:45","date_gmt":"2024-05-23T21:00:45","guid":{"rendered":"https:\/\/mtatradeoftheday.com\/?p=15601"},"modified":"2024-05-24T11:14:21","modified_gmt":"2024-05-24T15:14:21","slug":"how-correlations-pair-perfectly-with-strangles","status":"publish","type":"post","link":"https:\/\/mtatradeoftheday.com\/how-correlations-pair-perfectly-with-strangles\/","title":{"rendered":"How Correlations Pair Perfectly with Strangles"},"content":{"rendered":"

This week we held a special event around Nvdia<\/strong> (NVDA) earnings. We wanted to show attendees that there were several ways to play the earnings release besides buying NVDA shares for $970.<\/p>\n

Those who joined us in The War Room<\/a> used a unique strategy called a strangle.<\/p>\n

<\/a><\/p>\n

What we look for when it comes to these types of situations is not how to play the obvious (betting whether the stock will go up or down on earnings day), but how to use a vehicle that no one else is thinking about but has a very strong correlation.<\/p>\n

Correlation strategy <\/strong><\/p>\n

Playing correlation in investing is one of the best strategies out there and pairing it with a strangle increases the odds of success.<\/p>\n

If you are not familiar with strangles, here\u2019s a quick primer:<\/p>\n

A strangle is an options strategy used in investing that involves buying both a call option and a put option with the same expiration date but different strike prices. The call option has a higher strike price than the put option.<\/p>\n

This strategy is typically used when an investor expects significant volatility in the price of the underlying asset but is unsure of the direction of the price movement.<\/p>\n

When to Use a Strangle:\n<\/p>\n

    \n
  1. When you expect a large price movement but is uncertain about the direction.<\/li>\n
  2. Situations such as earnings announcements, mergers, or other significant events that could cause substantial price swings.<\/li>\n
  3. The maximum loss is limited to the total premium paid for both options.<\/li>\n<\/ol>\n

    For example:<\/strong> Suppose a stock is currently trading at $50, and an investor expects a big move in the stock price due to an upcoming earnings report but is uncertain whether the price will go up or down. You could:\n<\/p>\n