Read these three great Swing Trading Reports FREE-The Forex-4 Pack, The Quantum Swing Trading and the Profit Button Report that applies no matter what you trade-stocks, forex, futures or options. Give 14 days RISK FREE Trial to the Options University Trade Alert Service. Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report. You can use many options trading strategies to reduce risk and increase profits. How would you like to profit from a big move in the market without even knowing its direction. You can strangle the market with this options strategy. This options trading strategy relies on increased volatility that often occur when scheduled reports and other news items are released. It is easy to anticipate a change in volatility of a stock than a change in its price.
A straddle is a combination position that involves purchasing a call and a put on the same underlying stock. You use the straddle strategy when you anticipate a big move in the market but are not sure about its direction. You construct a straddle by purchasing a call and put on the same underlying stock with the same strike price and the same expiry month.
Using a straddle strategy can be highly profitable when scheduled reports like the earnings reports and company announcements are made plus when scheduled economic reports are released. The big move generally occurs when the reports are against the market expectations.
The advantage of using a straddle is that it doesn’t matter in which the move occurs as long as the market moves. Since a straddle is formed with two long options, your maximum risk is the premium you paid to buy the two options. The stock can move up or down for you to make a profit with the straddle.
For you to profit from the downward movement of the stock, the stock must go lower than the strike price minus the net options cost. This way your gains can be high but limited.
For you to profit from the upward movement of the stock, the stock must go higher than the strike price plus the net options cost. This way your gains can be unlimited.
Your risk with the straddle is limited to the initial net premium you paid for buying the two options contracts. A strong move in the stock either up or down will result in a profit.
A strangle is very similar to a straddle but reduces the risk and reward for the position. You form a strangle by purchasing a call and a put with different strike prices that are out of the money expire in the same month. In other words, a strangle is a straddle that reduces the potential risk by reducing the cost of the position.