Stocks and Commodities Magazine

Trading Strangles with Commodities in the Futures Market (Part 2 of 3)

If strangle traders can make money regardless of market direction, doesn’t it provide the best odds of success? (Part 2 of 3)


In last month’s column we focused on the advantages, but mostly disadvantages, of buying option strangles. This month, we’ll discuss the strategy of selling options strangles, which I believe to offer traders much better odds of success.

In essence, this is the simultaneous, or near simultaneous, sale of calls and puts of the same underlying futures contract. In contrast to a strangle buyer, who is betting on the market making a large move in either direction, the seller of a strangle is speculating on lack of volatility. Rather than paying money up front to place their wager, option sellers collect cash (known as premium) in exchange for the liability of paying off the option buyer should the circumstances warrant it (i.e. the futures price is beyond the strike price at expiration). Very bluntly, the strangle buyer is betting that something will happen; the seller is taking the bet with the assumption that nothing will happen.

This strategy is similar to that of casinos, or insurance companies, in that they bring in limited revenue in exchange for unlimited (or at least very large) risks, but they hope that over time the small premiums collected outweigh the lower probability payouts. If you’ve ever played the lottery, you know that your risk is a few dollars but your potential reward could be large; option selling is taking the side of the “house”.

 

Continue reading about the odds of success when trading option strangles in the futures market (Part 2 of 3) in the February 2014 issue of Stocks & Commodities Magazine

Share

DeCarley Trading on Twitter

Carley Garner Trading Books

  • All
  • A Trader's First Book On Commodities
  • Carley Garner
  • Carley Garner Books
  • Commodity Trading Book
  • Futures Trading Book
  • Learn To Trade
  • Learn To Trade Commodities
  • Learn To Trade Futures
  • Higher Probability Commodity Trading, new Carley Garner book

    Higher Probability Commodity Trading, new Carley Garner book

    According to Phil Flynn, Fox Business News contributor, this is Carley Garner's "masterpiece"! Order from Amazon today! "A great read for both beginner and advanced commodity traders. Carley nails the seemingly impossible task of leveling the playing field by imparting vital concepts in easy to digest bites ...she doesn't leave out the harsh realities and heartbreak many overzealous speculators face." -- JON NAJARIAN, co-founder NajarianFamilyOffice.com "I love the book... it's an MBA in trading for the
    Read More
  • Third Edition of A Trader's First Book on Commodities, now available

    Third Edition of A Trader's First Book on Commodities, now available

    In the latest edition of Carley Garner's beginners' book on commodities, she details everything you need to know about futures and options trading before placing a trade.  BUY NOW In their quest for trading commodities profitably, beginning traders spend a substantial amount of time studying market theory, various types of market analysis, and paper-trading in the futures and options markets.  Yet, almost all of them fail to take the necessary steps to ensure their trading
    Read More
    • A Trader's First Book On Commodities
    • Carley Garner
    • Carley Garner Books
    • Commodity Trading Book
    • Futures Trading Book
    • Learn To Trade
    • Learn To Trade Commodities
    • Learn To Trade Futures
  • Commodity Options the Book

    Commodity Options the Book

    It isn't free, but it's close! If this book saves you 2 ticks, you've recouped your investment.   Commodities are hot, as Jim Rogers would say.  Stagnant stocks and the massive bull rally in raw commodities have lured much of the attention away from Wall Street and toward down-town Chicago.  It is difficult to turn on the television or open the newspaper without being reminded of the impact that commodity prices have on our daily lives.   Traders
    Read More
  • Currency Trading in the FOREX and Futures Markets

    Currency Trading in the FOREX and Futures Markets

    Get a copy of Carley Garner's latest book at Amazon.com, or any major outlet! "Once again, Carley Garner demonstrates her ability to boil down complex concepts for individual traders. Trading Currencies in the FOREX and Futures Market will put budding currency traders ahead of the curve with its unique blend of the basics and some refreshingly unexpected material." ~ Karris Golden, Traders Press® "Carley is a smart trader and broker; she understands the markets and the importance of
    Read More

Newsletter Trial