TJ 171: Naked Strangle

Join Tim and Noah as they cover the advanced strategy of trading earnings with the naked strangle. Trading during earnings can be a harrying prospect for newer traders. Scads of new company data hits almost every day, the markets get jumpy, and the market acts unpredictably. Record earnings from that hot tech startup! Stock price is... dropping?? Lukewarm to bad earnings from an industry titan aaaaand its price just gapped up two dollars and made a short breakout run to the upside. There are ways to trade earnings safely. Trade around them, with your active trades avoiding the potential whipsaw. Don't trade them by staying in commodities, ETFs, and Forex. ...or you can utilize a strangle trade. A strangle (or collar) trade is where you have both a put and a call in place on a trade with the the limit order and stop order set around the price of each other. The theory is you're covered whichever way the price of the stock goes. When executed correctly, and that is the key, it works exactly like that. When set up improperly, though, it can deal serious damage to an account balance. A NAKED strangle (which is what Tim and Noah cover today) is doing that without owning any positions in the aforementioned stock. So take above, and add the risk of having to purchase the stock to fulfill the trade if it goes against you. It's a completely viable strategy, but it is for experienced traders only. Even then, it should be practiced through paper trading before going live with such a trade. With that note, enjoy Tim and Noah's take on the Naked Strangle.

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August's book is Money: Mastering the Game, by Tony Robbins. You can find it on Amazon right here, or check your local library. We'll be doing a live audience podcast on August 25 at 7 PM ET to discuss the book. You'll be able to join us right here: Podcast Room

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