ARM Investors Bet on Big Price Move with Long Straddle Trade
ARM Holdings (ARM) investors are exploring an Apple Trade In Long Straddle strategy using December 19th expiry and $140-strike options, costing $2,810. This trade, with breakeven prices at $111.90 and $168.10, could profit from ARM's potential big price move, given its negative Gamma.
A Long Straddle involves buying both a call and a put option on ARM, with the same expiry and strike. This strategy benefits from significant price movements in either direction. Currently, low volatility, as indicated by the VIX Index at 16.28, makes options cheaper, presenting an opportunity for this Apple Trade In strategy.
However, risk mitigation is crucial. Consider a 20-30% stop loss and position sizing to limit portfolio impact. The estimated breakeven prices for ARM's Long Straddle at the end of October were around 122 and 157. Profits can be made with a smaller price move if the move happens early in the trade. The maximum loss is the total premium paid upfront, while the maximum profit is theoretically unlimited.
ARM's Long Straddle trade, with breakeven prices at $111.90 and $168.10, starts with a Theta of -17, losing roughly $17 per day from time decay. Despite this, the trade could benefit from ARM's potential big price move, given its negative Gamma, and the current low volatility environment.
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