Anaplan Strangle

It’s hard to find high volatility with the market making new highs, day after day. Like all the problems just disappeared overnight.

Anaplan it’s a cloud-based planning company, listed just last year. It had a marvelous move this year but since September it started to form a value area around 50$, with the price at 52.50. It has the Implied Volatility at 42% and IV Rank at 53%. So, it’s a perfect opportunity to use an options strategy to sell volatility.

We are looking at the 66 days options expiration, we don’t have weekly options and 45 days is not an alternative then. The expected move of the stock for the cycle is around 8$. That is implied that the market sees the stock to move between 60$ and 45$, in the next 66 days. With allot of premium in the options strikes we are able to sell a strangle out of 1SD move with the legs at 9 and 13 delta, which implies a probability of around 90% that it will not finish ITM. An option’s delta is often used as a proxy for the estimated probability that a given option will finish in-the-money (ITM). And both legs are outside of the value area formed in the recent months. This is a rare opportunity considering the present low volatility. We start with a probability of profit of 80% and if we manage the trade efficiently and close it at around 50% from the credit received we get to 91%. Return on capital for this trade is 10% and we get 2.75$/day from theta decay if all other stays constant.

Below is the Monte Carlo simulation result for the next 45 days, the afferent time I want to keep the trade or roll otherwise. Because the last 21 days of the options expiration cycle could be a roller-coaster. As one can see it favors the trade from above.

Risk DisclaimerDISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks, and options may fluctuate, and, as a result, clients may lose more than their original investment. The idea from above is just my personal opinion.