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This dynamic nature of options allows you to craft a position to fit your exact market view. Perhaps there’s a big Federal Reserve meeting coming up and you expect the market to overreact, but you don’t have a specific view as to which direction. In this case, you can use a market-neutral option spread like a straddle or strangle. In the same vein, if the financial media and traders are making a big stink about something you deem a nothingburger, you can use strangles or straddles to take the view that the market will underreact to the news compared to what the market pricing expects. Strangles and straddles are market-neutral options spreads which are apathetic to the direction that price moves. They instead allow a trader to express a view on the magnitude of the price move, regardless if the price moves up or down. Let’s paint a quick hypothetical for demonstration. There’s a Federal Reserve meeting in a week. There’s tons of talk about the possibility of a Fed pivot and the dramatic implications that’d have for the global economy. Looking at the S&P 500 options for that expiration, you see that the implied volatility is very high compared to past Fed meetings. Traders are expecting the Fed to drop a surprise in some sense. Based on your own macro view, you’re unconvinced. You believe the Fed will continue their campaign of modest hikes of rates through the first half the year. In other words, you expect business as usual while the market expects radical change. As an options trader, you’re fully aware that change equals volatility and the lack of change leads volatility to contract, making most options expire worthless. You decide to sell a straddle, which involves selling an at-the-money put and an at-the-money call simultaneously. Should your view pan out, you’ll be able to pocket a good portion of the premium you collected when you opened the trade. What Is a Strangle? A strangle is market-neutral options spread that involves the simultaneous purchase or sale of an out-of-the-money call and an out-of-the-money put. So if the underlying is trading at $20.00, you might buy the $18 strike put and the $22 strike call. In this case, you’re hoping for a large price move in either direction, as your break-even price is often pretty far from the current underlying price. Let’s look at a brief example of a long strangle in $SPY using a .30 delta put and call with 27 days to expiration. Here’s the options we’re buying: ● SPY (underlying) price: 396.00 ● 1 386 FEB 27 PUT @ 4.31 (-0.30 delta) ● 1 407 FEB 27 CALL @ 3.54 (0.30 delta) ● Cost of Position: 7.85 Here’s the payoff diagram of this position: Once the position gets outside of the shaded gray area, the position is in-the-money. To provide some context to this position, SPY must move up or down roughly 4.5% for your position to be in-the-money. Let’s look at the same trade but from the short side: The details of this trade are a mirror opposite of the previous example. You’d collect a $7.85 credit, and your break-even levels are outside of the shaded gray area. You’d make this trade if you expect SPY to remain within that range through expiration (27 days). Strangle Strike Selection Strike selection is a significant factor here and there’s no correct answer really. The lower delta options you choose, the cheaper the spread and the lower the probability of profit will be. Perhaps you have a very specific market view, making strike selection obvious. But in most cases, novice option traders choose arbitrary strikes, which is a mistake. Strike selection is one of the most important aspects of trade structuring. An easy way to start being more thoughtful about selecting strikes is to view an option’s delta as a rough approximation of the probability of expiring in-the-money. This simple trick provides a lot of context to option pricing. You’ll see at-the-money options often hover around .50 delta, because the market basically has a 50/50 chance of going up or down over any time period not measured in years. As you get further from the money, deltas go down, which also makes intuitive sense. Using this framework, you can look at a .20 delta strangle and think “the market thinks there’s a 20% chance of either of these options expiring in-the-money. Is my probability forecast higher or lower than that? If you can answer this question, your strike selection becomes not only easier, but far more thoughtful. What is a Straddle? A straddle is a market-neutral options spread involving the simultaneous purchase (or sale) of a call and put at the same strike price and expiration. The goal of the trade is to make a bet on volatility in a market-neutral fashion. While any trade trade involving buying or selling a put and a call at the same strike price and expiration is technically a straddle, the majority of the time when we talk about straddles, we’re talking about an at-the-money straddle, meaning you buy a put and call at the ATM strike. In other words, if implied volatility is 20%, but you expect future realized volatility to be much higher than that, buying a straddle would provide a profit regardless of which direction the market goes, or how it arrives there. Along similar lines, if you expect realized volatility to be far less than 20%, you can short a straddle to profit from the market’s overestimation of volatility. In a word, you want to buy a long straddle when you think options are too cheap, and short straddles or short strangles when options seem too expensive. Here’s an example of a long straddle in SPY with 27 days to expiration. With SPY trading at 396 at the time of writing, we’d want to buy the 396 call and puts. Here’s how that’d look: ● SPY (underlying) at 396.00 ● 1 396 FEB 27 CALL @ 8.59 ● 1 396 FEB 27 CALL @ 7.69 ● Total cost of trade: $16.28 As you can see, this ATM straddle costs more than double what our 0.30 delta strangle costs us. Being wrong on straddles is far more painful. But this payoff diagram shows us the upside to this trade-off: What is most interesting here is that our 0.30 delta strangle from the previous example has nearly identical break-even points to this ATM straddle: around 379 and 414. However, looking at the shape of the P&L, you can see that you only experience your max P&L loss if the market goes absolutely nowhere and is still at 396 at expiration. If the market moves even modestly in either direction, your trade begins to move in your favor. This is in stark contrast to our strangle, in which we experience maximum loss at a far wider range of prices. So while you do have to shell out more premium to establish a straddle, it’s quite unlikely you’ll actually lose all of your premium. The Similarities Between a Strangle and a Straddle Both are Defined-Risk Options Spreads Both the straddle and strangle involve buying two different options without selling any options to offset the premium paid. So the most you can lose in either a straddle or strangle is the premium you paid. A defining trait of many defined-risk, long options strategies is the convexity afforded to you; you know the maximum you can lose is X, but your upside is theoretically unlimited. This can of course lead to occasional massive wins where the market basically trends in your direction until expiration. Both Are Market-Neutral Options allow you to express a more diverse array of market views than simply long or short. One of those is the ability to profit without having to predict the direction of price. While market-neutral is an easy term to use because most understand it off the bat, that’s not entirely correct. You can more accurately call straddles or strangles delta neutral strategy because while you’re neutral on the direction of price, you’re still ultimately taking some sort of market view. In the case of straddles and strangles, you’re taking a view on whether volatility will expand or contract. Or in other words, do you have conviction on whether the market will move more or less than the option market thinks? If so, you can profit from this view. Put simply, if you expect the underlying to get more volatile before expiration, you want to be long volatility. Taking a long volatility view assumes that the options market’s implied volatility forecast is too low, making options too cheap. Expressing a long volatility view in the context of a straddle or strangle means taking the long side of the trade (buying the options instead of shorting them). Just as we described in the intro of this article, if you hold the view that the market is overhyping the significance of a catalyst, you make the same trade in reverse; you can short an at-the-money put and an ATM call, which is a short straddle. If realized volatility is lower than implied volatility, then you’ll end up pocketing a good portion of premium when you close the trade. The Differences Between a Strangle and a Straddle Straddles and strangles express very similar views; traders using them are either expressing a long or short volatility while remaining agnostic on price direction. Where they differ is the magnitude of their view, or how wrong they think the market pricing of implied volatility is. From the long-volatility perspective, it’s cheaper to buy a strangle because you’re buying OTM options but the dilemma is that with cheaper OTM options, you have a lower probability of profiting from the trade. The market needs to move more to put you in the money. If you flip this dilemma to the short side, you have the same problem. When shorting strangles, you have a high probability of collecting the entire premium at the conclusion of the trade, but when the market does make a big move, you experience a huge loss. So you can rack up several wins in a row only to see one loss knock out all of these gains. ATM Straddles Have More Premium Than Strangles At-the-money options have more premium than OTM options. So it follows that the straddle, a spread with two ATM options, would have far more premium than one with two OTM options, the strangle. For this reason, systematic sellers of premium, what you might call the “Tastytrade crowd,” really like straddles for their high premium properties. This property of higher premium doesn’t make the straddle superior for premium sellers, as there’s no free lunch--premium sellers are paying for this higher level of premium with a lower win rate on their trades. Straddles Have a Higher Probability of Profit As it might’ve become clear throughout this article, constructing options spreads is all about tradeoffs. Want to put out a small amount of capital with the possibility of a huge win? You can do that, but you’ll hit on those trades a small portion of the time. Likewise, if you want to profit on most of your trades, you’re essentially paying for that in the sense that your frequent winners will be small profits and your infrequent losers will be much bigger. This dynamic applies equally to the choice between straddles and strangles. A straddle requires more premium outlay with a higher possibility of profiting the trade, while strangles enable you to risk less overall on the trade, but you have to be “more right” on your market view to make a profit. Your choice between these spreads when you want to make a market-neutral bet on volatility ultimately comes down to your own trading temperament, as well as which spread makes more sense given your market view. Bottom Line: Straddles and Strangles Are About Volatility For most traders, their introduction to options is related to an attraction to the leverage and convexity for their directional market bets. But as they peel the layers away and learn about the true nature of options, they learn that they’re far more than tools to get leveraged exposure to a stock or index. The first and easiest lesson is the time aspect. The longer-dated the option, the more it costs. Optionality costs money. This is very easy to grasp. One-year options should cost more than one-day options. The next step is understanding how market volatility relates to option pricing. It’s far less intuitive. But, consider this hypothetical… You’re offered the choice between paying the same price for a one-month at-the-money option on two different stocks. One is highly volatile and frequently swings 10% daily. Tesla (TSLA) is a good example. The second stock is a stable blue chip stock that doesn’t move around that much. Think something like Walmart (WMT) for instance. Most would correctly choose the volatile stock. It’s common sense, right? After all, a stock like Tesla can move up or down 30% in a month, while a stock like Walmart often swings less than 10% in a month. So like time, volatility has a price. But because future volatility is uncertain, that price is dynamic and subject to the opinion of the market. Like any market price, there are always opportunistic traders who profit from the inefficiencies of market pricing. This is where volatility trading comes in. Think of strangles and straddles as the hammer and drill of volatility trading. They’re classic tools you reach for over and over again. Remember, whenever you buy or sell an option, you’re making an implicit bet on volatility, whether you like it or not. If you buy an option, you’re taking the stance that volatility is too cheap. Related articles How We Trade Straddle Option Strategy Exploiting Earnings Associated Rising Volatility Buying Premium Prior To Earnings - Does It Work? Can We Profit From Volatility Expansion Into Earnings? Long Straddle: A Guaranteed Win? Straddle, Strangle Or Reverse Iron Condor (RIC)? Selling Strangles Prior To Earnings Straddle Option Overview Long Straddle Through Earnings Backtest Straddles - Risks Determine When They Are Best Used Long And Short Straddles: Opposite Structures

First, a reminder: Straddle construction: Buy 1 ATM Call Buy 1 ATM Put Strangle construction: Buy 1 OTM Call Buy 1 OTM Put Reverse Iron Condor construction: Buy 1 OTM Put Sell 1 OTM Put (Lower Strike) Buy 1 OTM Call Sell 1 OTM Call (Higher Strike) When buying a straddle, we are buying calls and puts with the same strikes and expiration. 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 provide a reasonable compromise. For lower priced stocks, I would prefer a ATM (At The Money) straddle (buying the same strikes). 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. Generally speaking, dollar P/L is usually similar for strangles and straddles. However, since strangles are cheaper in dollar terms, percentage P/L will be higher for strangles. This applies to both winners and losers, which makes a strangle a more aggressive trade (higher percentage wins but also higher percentage losses). If the stock price moves significantly, strangles will likely produce higher returns. But if the stock doesn't move and IV increase is not enough to offset the negative theta, strangles will also lose more. 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). When you want to trade earnings and expect a big move, those strategies can provide excellent returns. RIC has limited profit potential, but when the stock moves less than expected, it can provide better returns than straddle or strangle with less risk. The bottom line: Strangle is the most aggressive trade, with higher risk and higher reward. It has the highest negative theta (as percentage of the trade price) so it will lose the most if the stock doesn't move and/or IV doesn't increase enough to offset the theta. RIC is the most conservative trade. Straddle falls in the middle, and many times it provides the best risk/reward. Let me know if you have any questions. Related articles How We Trade Straddle Option Strategy Reverse Iron Condor Strategy Why We Sell Our Straddles Before Earnings Want to learn more? We discuss all our trades on our forum. Join Us

This approach will work if you believe that profits will accumulate when you work with in-the-money positions rather than at- or out-of-the-money ones. For most traders, this long shot keeps them away from the “guts” and sets up a preference for the less expensive long or less risky short forms of strangles. These can be opened in either configuration whether you own stock or just want to work with options. Gut strangle (long) A long gut strangle is the purchase of an ITM call and an ITM put. The idea is that either side needs to move enough points to exceed the cost of the options. It is typically opened when you expect a big move but you’re not certain of the direction. For example, a stock tending to move a lot after earnings surprises may jump higher or fall lower, and a surprise is expected. The long gut strangle is a gamble because you will need many points of movement, but it also can pay off in a big way if the move takes place. This sets up unlimited profit potential along with limited risk. A profit occurs when price moves more than the total cost to open the position: Underlying < long put strike – net premium paid Underlying > long call strike – net premium paid The gut strangle will break even in two circumstances: Net premium paid + long call strike Strike of long put – net premium paid The risk in the long gut spread is limited. It occurs when the underlying price ends up in between the two strikes: Net premium paid + strike of long put – strike of long call Gut strangle (short) A short position is set up by selling a call and a put, both in the money. This version establishes limited profit with unlimited risk. It is the opposite of the long guts because both profit and loss are flipped. With the sale, you receive the net premium for the two in-the-money options. This is the appeal of the short gut strangle. However, you also have to ensure that collateral is posted in your margin account for both options. Depending on the strike, this could be an inhibiting number. The short gut strangle is an oddity. The short put has the same market risk as a covered call, but the short call is a high-risk position. It combines low-risk and high-risk in a single strategy. The limited profit is equal to the net premium received, and it occurs when the underlying ends up in between the two strikes: Net premium received + short put strike – short call strike Breakeven occurs in two positions: Net premium received + strike of short call Strike of short put – net premium received Maximum risk can be substantial and is unlimited. It occurs whenever the underlying moves above or below the strikes and exceeds premium received: Price of underlying < strike of short put – net premium received Price of underlying > strike of short call + net premium received This can be modified away from the strangle and set up as a straddle, but more important than this is the analysis of potential profit or loss overall. The gut strangle is rarely employed because profits are difficult to earn and risks are difficult to overcome. Even so, it deserves consideration in the range of possible options strategies you could deploy. Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Guide as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.

What I began to realize over the years was that the risk I was taking with iron condors was excessive, so the thought of selling a “naked” strangle was unimaginable. This risk was due to ridiculously large position size, or leverage, and over time I began to understand this reality better. An iron condor is simply a short strangle with long options that are further out of the money than the short options. Some traders refer to the long options as “wings”. Because an iron condor creates a maximum potential loss equivalent to the width of the spread, traders make the mistake of often trading their account up to or near the maximum number of contracts that would wipe out most of their account if that max loss occurred, which during periods of low market volatility may be as minor as a 10-15% drop in the market.The average intra-year drawdown for the S&P 500 has been about 14% since 1980, so this is something that occurs almost every year. This is of course why you hear so many stories of retail traders and credit spread/iron condor newsletters blowing up. As is almost always the case, the risk isn’t really the strategy…but instead the position size of the strategy! There’s no strategy so good that enough leverage can’t make it a blow up waiting to happen. Due to the nature of out of the money option selling, the negatively skewed return stream can take a while to materialize when there are long periods of relatively calm market conditions. Today, I think of a strangle as a cash secured put along with an out of the money short call. Thinking about the trade this way transforms a short strangle from seemingly risky into a rather conservative trade, due to the position sizing rule. For example, with SPX currently trading at about $3,000, a strangle would be sized at about 1 contract per $300,000. Compare this to selling 10-point wide put and call credit spreads to create an iron condor, and many newsletters might suggest that you sell something like 275 contracts per $300,000 of capital! Think about that for a moment…technically the iron condor has “defined risk” of $275,000 (ignoring the credit received), while the strangle has “undefined” risk because the short call is naked and prices can theoretically rise forever. Yet the risk is immensely different for the two trades due to the number of contracts involved. The strangle has a positive expected return and will very likely survive and succeed over the long-term due to the well documented Volatility Risk Premium (VRP), while the iron condor will cause an eventual blowup. When someone says they prefer iron condors over strangles because the risk is “defined” with an iron condor, they probably haven’t spent a lot of time thinking about position sizing. This should be the biggest lesson from this article…risk is defined by your position size to a much greater degree than it is by the strategy. Yet it’s a topic that is not well understood or appreciated by most traders. I think about an iron condor similar to how I’d think about owning 100 shares of a stock and then buying a protective put. A strangle is like owning just those 100 shares, while an iron condor is like owning those 100 shares along with an out of the money protective put. That put will reduce your downside during extreme selloffs that are greater than the market already baked into prices, but at a substantial cost over the long run (again, due to the VRP). To illustrate this, I backtested SPY strangles and iron condors using the ORATS wheel. Selling 30 delta strangles on SPY since 2007 has produced an average annual return of 5.34% (volatility of 8.36%, Sharpe Ratio 0.64), while a 30 delta iron condor with wings set at 20 delta returned only 0.15% (volatility of 3.08%, Sharpe Ratio of 0.05). I ran the test a few times just to make sure I was getting consistent results. The additional transaction costs and performance drag of the long options is so significant that almost the entire return generated from the short options disappears. Another comparison is Iron Condor Vs. Iron Butterfly Conclusion On your journey as an options trader you’ll hear a lot of conventional wisdom repeated over and over that simply isn’t true or provides incomplete information. One of those myths is how selling strangles is risky and instead a trader should sell an iron condor. This statement tells us nothing about position sizing. If you read this article and are still resisting the information I’m sharing, ask yourself this question: Is the reason you still want to use an iron condor over a strangle due to how you might look at the expected return of the strangle as I’ve laid it out and feel a little underwhelmed? Perhaps this article is also what you need to hear instead of what you want to hear, because I know I was in that camp at one time. You might consider that the 5% return of the SPY strangle since 2007 is similar to the long-term global equity risk premium, which serves as the benchmark for virtually everything since so few investments have been proven to be able to reliably exceed it over the long term.Until someone shows you an independently audited decade plus long track record of a fund or newsletter selling iron condors with the “X% per month” average returns that are often fantasized about and marketed to new traders, use the position sizing algorithm presented in this article instead as your baseline. Think in terms of notional risk instead of margin requirements, and you’ll substantially reduce the risk of an unrecoverable negative surprise on your trading journey. Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios. Related articles Selling Naked Strangles: The Math Selling Short Strangles And Straddles - Does It Work? Selling Options Premium: Myths Vs. Reality Karen The Supertrader: Myth Or Reality? Karen Supertrader: Too Good To Be True? How Victor Niederhoffer Blew Up - Twice The Spectacular Fall Of LJM Preservation And Growth James Cordier: Another Options Selling Firm Goes Bust Trading An Iron Condor: The Basics The Hidden Dangers Of Iron Condors

Introduction Several investors expressed interest in trading instruments related to the market's expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006. Options and futures on volatility indexes are available for investors who wish to explore the use of instruments that might have the potential to diversify portfolios in times of market stress. VIX is a great way to hedge your long portfolio. It is a well known fact that during severe market downturns, VIX spikes significantly, which can offset some of your portfolio losses. However, you cannot trade VIX directly. There are few ways to trade VIX: ETFs/ETNs. iPath S&P 500 VIX Short-Term Futures ETN(NYSE:VXX) is just one example. VXX trades first and second month VIX futures. Unfortunately, VXX is not designed to be held beyond very short period of time due to contago loss. Most days both sets of VIX futures that VXX tracks drift lower relative to the VIX—dragging down VXX’s value at the average rate of 4% per month (30% per year). In fact, VXX is probably one of the worst long term investments. VIX futures and Options. Options and futures are investments with a definite lifespan; not only do investors have to be right about the direction of volatility, but also the timeframe. Of course if you buy VIX calls and volatility spikes, you can make some significant gains. But most of the time, those calls will lose money due to the fact that VIX drift lower, and those options will lose value over time. Possible solution: VIX strangle This article describes the following strategy of going long VIX: Purchase VIX put options that expire 3 months out and are 2.5% out of the money and simultaneously buy 4th month call options that are 20% out of the money. These positions are established each month on a date that is half way between the 3rd and 4th month expiration dates. Two months later these option positions are rolled. The put leg of the calendar strangle can help reduce the cost of the long call. Typically, when hedging through purchasing an out of the money call option on VIX to gain protection against tail risk there can be an undesirable carrying cost for the position. In periods of low volatility the long put position will benefit from the term structure of VIX futures pricing as the time to expiration for the option approached expiration. The long call position will be in place to potentially benefit from market conditions that result high higher implied volatility for the market as indicated by VIX. The general idea is that short term futures are declining faster than long term futures, and if VIX stays stable, the put gains will offset the call losses. Basically the strategy will roll the trade every two months. Expected results During calm periods when VIX stays stable or drifts lower, we can expect the trade to produce 10-15% gains or end up around breakeven because the puts gains will offset or slightly outpace the calls losses. However, during periods of volatility spike, the calls should gain significantly, and in some cases, the whole structure can deliver 50-100% gains. This is basically a cheap way to go long VIX and hedge your long portfolio, without experiencing losses during calm periods. We have made several changes to the strategy in order to better adapt to the current market conditions. Related articles: VIX - The Fear Index: The Basics VIX Term Structure Top 10 Things To Know About VIX Options Want to see how we implement this strategy in our SteadyOptions model portfolio? Start Your Free Trial

The problem is you are not the only one knowing that earnings are coming. Everyone knows that some stocks move a lot after earnings, and everyone bids those options. Following the laws of supply and demand, those options become very expensive before earnings. The IV (Implied Volatility) jumps to the roof. The next day the IV crashes to the normal levels and the options trade much cheaper. Over time the options tend to overprice the potential move. Those options experience huge volatility drop the day after the earnings are announced. In many cases, this drop erases most of the gains, even if the stock had a substantial move. In order to profit from the trade when you hold through earnings, you need the stock not only to move, but to move more than the options "predicted". If they don't, the IV collapse will cause significant losses. However, there are always exceptions. Stocks like NFLX, AMZN, GOOG tend on average to move more than the options imply before earnings. It doesn't happen every cycle. Few cycles ago NFLX options implied 13% move while the stock moved "only" 8%. A straddle held through earnings would lose 32%. A strangle would lose even more. But on average, NFLX options move more than expected most of the time, unlike most other stocks. NFLX reported earnings on Monday October 17. The options prices as indicated by a weekly straddle "predicted" ~$10 (or 10%) move. The $100 calls were trading at $5 and the puts are trading at $5. This tells us that the market makers are expecting a 10% range in the stock post earnings. In reality, the stock moved $19. Whoever bought the straddle could book a solid 90% gain. Implied Volatility collapsed from 130% to 36%. Many options "gurus" advocate selling options on high flying stocks like NFLX or AMZN, based "high IV percentile" and predicted volatility collapse. However, looking at history of NFLX post-earnings moves, this doesn't seem like a smart move. As you can see from the table (courtesy of optionslam.com), NFLX moved more than expected in 7 out of 10 last cycles. For this particular stock, options sellers definitely don't have an edge, despite volatility collapse. If the stock moves more than "expected", volatility collapse is not enough to make options sellers profitable. Generally speaking, I'm not against selling options before earnings - on the contrary. For many stocks, options consistently overestimate the expected move, and for those stocks, this strategy might have an edge (assuming proper position sizing). But NFLX is one of the worst stocks to use for this strategy, considering its earnings history. Related articles Why We Sell Our Straddles Before Earnings Why We Sell Our Calendars Before Earnings How NOT To Trade NFLX Earnings The Less Risky Way To Trade TSLA If you want to learn how to trade earnings the right way (we just booked 26% gain in NFLX pre-earnings trade): Start Your Free Trial