The Priceline Short Strangle trade
The Short Strangle is generally a trade that’s considered risky because it has unlimited Loss profiles on both the Call and Put sides. But in this case, with a buffer zone as wide as the Panama Canal, it made sense to put the Short Strangle on Priceline, especially because of a very special Implied Volatility arbitrage that had opened up in the days before it released earnings.
This kind of an arbitrage opportunity does happen more often than you think. Not always, but it does happen on certain stocks. There’s no reason why the Option series that is not impacted by the Earnings report should experience elevated levels of Implied Volatility. But it does, and you have to move in for the kill.
Video of the spectacular results..