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I'm asked many times how I choose between Straddle, strangle or RIC for my pre-earnings plays. It's always a balance between risk/reward. As we know, those trades are supposed to be sold before earnings. They benefit from IV jump and/or price movement. The biggest (and basically the only) enemy is the negative theta. When buying a strangle, we are buying calls and puts with different strikes. The strangle will have the largest negative theta (as percentage of the trade value, not absolute dollars). Further you go OTM, the bigger the negative theta. If the stock moves, the strangle will benefit the most. If it doesn't it will lose the most. I found that if I have enough time before expiration, deltas in the 25-30 range for both puts and calls provide a reasonable compromise. For lower priced stocks, I would prefer a ATM (At The Money) straddle (buying the same strikes). For example, strangle on a $20 stock might be very commissions consuming, plus the negative theta might be too big. Please note that when I'm talking about the theta being larger or smaller, I'm always referring to percentages, not dollar amounts. In absolute dollars, the theta is always be the largest for ATM options. However, since those options are also more expensive in dollar terms, percentage wise the theta will be the smallest. For higher priced stocks (over $100) I will usually do RIC. Since you sell a further OTM strangle against the purchased strangle, this reduces the theta of the overall position. It might be the least risky position and still benefit from IV jump like AMZN trade. I prefer to have spreads of $5 for RIC. Since I don't know what will happen with the stock I play, I prefer to have a mix of all three. In case of a big move, strangles will provide the best returns. When IV is low, RIC will provide some protection against the theta while still having nice gains from time to time. Remember: those are not homerun trades. You might have a series of breakevens or small losers, but one down day can compensate for the whole month. This is why I want to be prepared when it happens. In August I had 4 doubles in two days (but I played mostly strangles). Generally speaking, RIC is the most conservative trade due to lower negative theta (the sold strikes reduce the negative theta). But if the stock moves sharply, strangle will produce the highest gains. It also might lose the most if the stock doesn't move and IV increase is not enough to offset the theta. Let me know if you have any questions. This post has been promoted to an article

I'd be leery of this trade purely from a risk vs reward perspective - with this trade your best case is $148 gain per spread and you worst case is a $1602 loss per spread. In all likelihood AMZN will stay below your short strike and you'll make your $148 per spread, and when making these type of trades you'll usually have over 90% winners, but the losers can be huge and wipe out all the other winners. I got burned by one of these many years ago when I first started playing options and won't do it again. Your thesis of AMZN staying below 302.50 over the next week is fine, but there are other ways to play this thesis that are better from a risk/reward perspective. You can do an ATM or below butterfly using next week's options, you can do a calendar using ATM or lower strike if you think its going to drop. Both of these strategies can make the same $148 (or more) per spread within the next week if your thesis holds, but your max loss is much less than the $1602 per spread if the stock does not behave as you expect.