[RT] OPT: Trading range breakouts

["Gitanshu Buch" <onwingsofeagles@xxxxxxxxxxxxx>]

By definition, trading ranges compress statistical volatility 
(the volatility of the underlying).
 
Therefore the technical trader's way of capturing volatility 
explosions is to buy the breakout of the top of the range and short the 
breakdown from the bottom of the range.
 
The stops either go at the opposite extreme of the range or at 
the breakaway point, depending on one's appetite for risk and market 
liquidity.
 
Much has been written about trading volatility explosions in 
the works of Crabel, Raschke, Connors, Cooper etc.
 
Here's how the ibm synthetic straddle trade captures the same 
strategy, but pre-empts the need to act in fast market high tension slippage 
conditions when the actual breakout happens.
 
It also obviates gap risk should the position need to be held 
overnight.
 
Gitanshu






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