How It Works
- 1
Identify event with binary outcome (earnings, court ruling, election)
- 2
Purchase ATM Call and ATM Put
- 3
Pay double premium (high cost)
- 4
If price stays flat, lose everything (max loss = premium)
- 5
If price explodes up OR crumbles down, profit
Key Mechanics
Implied Volatility (IV) vs Realized Volatility (RV)
Vega exposure (sensitivity to volatility)
Theta decay (time eats value rapidly)
Gamma explosion near expiration
Regulatory Context
Standard options trading rules apply.