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Chapter 8. Two Basic Volatility Strategies > Chapter 8 Major Learning Points

Chapter 8 Major Learning Points

In this chapter we’ve learned the basic rudiments of how to play an anticipated surge in volatility. The Straddle is a bread and butter strategy, simple to execute and well documented, while the Strangle is also a sound strategy for playing volatility.

The Straddle has, on balance, more advantages provided you play the strategy according to the rules outlined here. The rules are designed to minimize your risk while allowing you to maintain your chances of a high potential reward. Ultimately, the more we minimize the cost of entry, the steeper the Straddle profile will be and the faster you’ll emerge into a profitable position as the stock starts to move in either direction away from the Exercise Price. By exiting the position with at least a month left to expiration, we’re not over-exposing ourselves to time decay. Yes, we may encounter the odd loss here and there if the stock doesn’t move at all, but we’re not risking the bulk of our trade if we adhere to this rule with strict discipline.


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