Playing a Penny Options Strangle With General Electric
It’s earnings season again, which means it’s time to employ one of the best and most effective options strategies…
This strategy has brought in huge profits for War Room members – one member was able to buy a car for his daughter after cashing in on Bryan’s FedEx strangle!
So, what is a strangle exactly?
A strangle is when you buy a call option and a put option on a single stock, but with different strike prices. By buying both a put and a call, you are betting that the stock price will break sharply in one direction.
The best-case scenario is the stock having a sharp break in one direction that makes you more money than you paid for the whole strangle.
The worst-case scenario is the share price of the stock staying close to where it was before its earnings were released. In that case, you would likely lose all the premium that you paid.
So, there is risk… and reward!
A couple of months ago, War Room members went in on a General Electric (NYSE: GE) options play. The shares became super volatile right around earnings.
The volatility arose from a “whistleblower” working with a short seller (short sellers make money when the price of a stock goes lower). The whistleblower said that General Electric was cooking its books and hiding massive liabilities through accounting gimmicks and misstatements.
This news caused the shares to dip sharply, and War Room members jumped in to take a speculative position using a penny option. In the following days, General Electric rebuffed the allegations and the shares rose. Insiders heavily bought shares in the open market. War Room members cashed in on the “scare” because they were able to react in real time.
At the end of this month, General Electric will report earnings again. Management is positive on the operations at the company. The analyst community’s outlook is still up in the air. That makes for a perfect setup for an earnings strangle play. And that is exactly what members did in The War Room this week!
Action Plan: Members took a penny option strangle position that will allow them to make money if the shares move sharply up or down. We don’t care which way the play goes… just as long as it moves sharply in one direction!
About Karim Rahemtulla
With more than 20 years of experience, Karim has mastered the subtle art of options trading. What we admire about him is his ability to score huge gains while minimizing the massive amount of risk that often comes with options. Beyond his expertise in options trading, he is also the author of the best-selling book Where in the World Should I Invest? He publishes weekly about smart speculation in his latest free e-letter, Trade of the Day.