About this Strategy
This strategy identifies opportunities that exhibit a combination of both unusually low options volatility and Elliott Wave corrective patterns. A Strangle option strategy is used to capture profit from increasing option volatility during the ensuing break out from the consolidation pattern.
Where a sufficiently low level of volatility in options pricing exists, we can have a reasonable expectation of an increase in volatility to historical levels. If we can combine these circumstances with markets that our Elliott Wave analysis shows are consolidating and are likely to have a significant move, either up or down, then we have a reasonably low risk trade.
Applying a strangle means that we have limited downside and assuming selection of the appropriate expiry month, the loss of time value (theta) will be minimal during the period of applying the strategy and waiting for the breakout. In fact, often the anticipated increase in volatility is sufficient to create a profitable trade even without a dramatic move in the underlying.