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How to Use the Elliott Wave Principle

to Improve Your Options Trading Strategies

Course 3: Volatility Strategies Long Straddles and Strangles

Wayne Gorman

Elliott Wave International, Inc.


P.O. Box 1618, Gainesville, GA 30503
(800) 336-1618 (770) 536-0309 Fax (770) 536-2514

www.elliottwave.com

2009 Elliott Wave International


How to Use the Elliott Wave Principle
To Improve Your Options Trading Strategies

Course 3: Volatility Strategies Long Straddles and Strangles

Long Straddle
Strip
Strap

Long Strangle
Long Guts

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1. Long Straddle

Buy 1 ATM Put Buy 1 ATM Call Net Debit


Looking for Significant Move in Either Direction
Relatively Longer-Term Strategy, 3 Months
Maximum Risk Capped at Net Debit
Maximum Reward Uncapped

Upper Breakeven: Strike Price + Net Debit


Lower Breakeven: Strike Price - Net Debit

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Optimal Elliott Wave Characteristics for Using Long Straddle

Wave: Characteristics:

Function Actionary / Main Trend


(Continuation or Major Reversal)
Structure Impulse

Position 1 (Major Turning Point)

Degree Relatively High

Entry Point End of Wave 5

Prior to Entry Point at Next Lower Degree Impulse

Checklist Satisfy Elliott Wave Rules and Guidelines


Fibonacci Price Target or Cluster
Fibonacci Time Target or Cluster
Favorable Implied Volatility at Entry Point

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2. Strip

Buy 2 ATM Puts Buy 1 ATM Call Net Debit


Looking for Significant Move in Either Direction with Bias
to the Downside
Relatively Longer-Term Strategy, 3 Months
Maximum Risk Capped at Net Debit
Maximum Reward Uncapped

Upper Breakeven: Strike Price + Net Debit


Lower Breakeven: Strike Price - Half the Net Debit

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3. Strap

Buy 1 ATM Put Buy 2 ATM Calls Net Debit


Looking for Significant Move in Either Direction with Bias to the Upside
Relatively Longer-Term Strategy, 3 Months
Maximum Risk Capped at Net Debit
Maximum Reward Uncapped

Upper Breakeven: Strike Price + Half the Net Debit


Lower Breakeven: Strike Price - Net Debit

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Optimal Elliott Wave Characteristics for Using Strip and Strap

Wave: Characteristics:

Function Actionary / Main Trend


(Continuation or Major Reversal)
Structure Impulse

Position 1 (Major Turning Point)

Degree Relatively High

Entry Point End of Wave 5

Prior to Entry Point at Next Lower Degree Ending Diagonal, Truncated Fifth,
Fifth Wave Extension

Checklist Satisfy Elliott Wave Rules and Guidelines


Fibonacci Price Target or Cluster
Fibonacci Time Target or Cluster
Favorable Implied Volatility at Entry Point
Termination Pattern or Other Evidence of Reversal

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4. Long Strangle

Buy 1 OTM Put Buy 1 OTM Call Net Debit


Looking for Significant Move in Either Direction
Relatively Longer-Term Strategy, 3 Months
Maximum Risk Capped at Net Debit
Maximum Reward Uncapped

Upper Breakeven: Higher Strike Price + Net Debit


Lower Breakeven: Lower Strike Price - Net Debit

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Optimal Elliott Wave Characteristics for Using Long Strangle

Wave: Characteristics:

Function Actionary / Main Trend


(Continuation or Major Reversal)
Structure Impulse

Position 1 (Major Turning Point)

Degree Relatively High

Entry Point End of Wave 5

Prior to Entry Point at Next Lower Degree Impulse

Checklist Satisfy Elliott Wave Rules and Guidelines


Fibonacci Price Target or Cluster
Favorable Implied Volatility at Entry Point

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5. Long Guts

Buy 1 ITM Put Buy 1 ITM Call Net Debit


Looking for Significant Move in Either Direction
Relatively Longer-Term Strategy, 3 Months
Maximum Risk = Net Debit - Difference in Strike Prices
Maximum Reward Uncapped

Upper Breakeven: Long Call Strike Price + Net Debit


Lower Breakeven: Long Put Strike Price - Net Debit

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Optimal Elliott Wave Characteristics for Using Long Guts

Wave: Characteristics:

Function Actionary / Main Trend


(Continuation or Major Reversal)
Structure Impulse

Position 1 (Major Turning Point)

Degree Relatively High

Entry Point End of Wave 5

Prior to Entry Point at Next Lower Degree Impulse

Checklist Satisfy Elliott Wave Rules and Guidelines


Fibonacci Price Target or Cluster

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Optimal Elliott Wave Characteristics Summary

OPTION STRATEGIES
Long Straddle
Strip/Strap Long Strangle
Long Guts

Actionary / Main Trend Actionary / Main Trend


Function
(Continuation or Major Reversal) (Continuation or Major Reversal)

Structure Impulse Impulse

W Position 1 (Major Turning Point) 1 (Major Turning Point)


A
V
Degree Relatively High Relatively High
E

Entry Point End of Wave 5 End of Wave 5

Prior to Entry Point Ending Diagonal


At Next Lower Truncated Fifth Impulse
Degree Fifth Wave Extension

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Checklist Summary

Greater Certainty Lesser Certainty

Strip/Strap Long Straddle Long Strangle Long Guts

Termination
Patterns
* P
A
S Elliott Wave

E
V
Rules and
Guidelines
Satisfied
P P P P
I
D
Fibonacci
E
N
C
Price Target
or Cluster P P P P
E
D Fibonacci

B
Y
Time Target
or Cluster P P
Favorable
Implied
Volatility at
Entry Point
P P P
* Fifth Wave Extension, Ending Diagonal, Truncated Fifth Wave
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Elliott Wave International

770-536-0309 or 800-336-1618

www.elliottwave.com

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