Traders could use OTM Spreads to monetize that far-fetched move
In the past, we have seen that there comes an opportunity where the expectation gets set in for an out of the ordinary move. Back-to-back 3-5 percent move in a slow-moving large-cap stock is a good example of this.
Two things that these would bring along are Higher Implied Volatility (Expected Volatility) and choppy market with larger degree swings than the usual.
Situations like these do present a lot of trading opportunities but amid moves that could actually put us in to one of the two situations, either getting stopped out before hitting the price objective or trading with an excessive leeway in terms of stop losses creating a deep drawdown trade.
Either of the cases ruins the chances of making money despite the fact that the view was right. To add to this these are t ...