Straddle Options
Home Page: To those of you who have arrived at this site on option
trading
and
straddles by surfing the web,
may I offer you a
very warm welcome, and to those who have arrived from
the
Options Trading Site - welcome back! I hope you find this
site both helpful and informative and like all my sites the
information is provided free of charge. Options trading is not
for the novice trader, as both the terminology and the trades
available can be complex and confusing. This site is dedicated
to one type of options trade - the straddle. Options by nature
are extremely flexible instruments, and there are many ways to
trade them - using a straddle is just one of these strategies.
If you would like a good introduction to options I have recently
published a site dedicated to
options trading, which has several pages on options,
how they work and the various aspects you will need to
understand in order to trade them successfully. I also have a
site on
covered call writing, another options strategy which I use All the
information is free ( as always ) As a full time trader I love
trading options, but as I'm sure you know, you will need a specialist broker.
If you would like to follow some of my trades, I do post regularly on Twitter which is often called a "micro blogging" service. For those of you who are not familiar with it, it is simply a quick way to stay in touch with friends, family and news. You only link to people who are of interest to you, and the longest message is limited to 140 characters, so messages are short and sweet! It is ideal for me as I can update very quickly from my screen with details of possible trades, opportunities, news and also details of when my other sites have had new posts added, so you are always in touch. If you would like to follow me, and you already have a Twitter account, please just click on the "follow me on twitter" link above, or alternatively open an account with Twitter and then follow me. In addition I am also on Facebook, and MySpace, and would be delighted to hear from you there. I will shortly be opening a trading room on FriendFeed which will be available for you to meet other traders and investors and to discuss trading ideas, problems and strategies, along with access to my own trading suggestions. So there is a great deal going on at the moment, and please don't forget, you can always ask me a question at the new 'Ask Anna' site, or simply review trading questions asked by others so I hope you enjoy this new site.
I am in the process of updating all my sites which will include daily posts and videos by me, about future market directions, suggested trades, and opportunities for future trades. In addition when a site has been updated with a new post or video then these details will also appear immediately, which I hope you will find useful, and I look forward to welcoming you via one of the above.
Learn Options Trading - The Long Straddle
The straddle is an interesting options trading strategy as it is one where we have no idea on the future direction of the market, but feel sure that it will move significantly in one way or the other. The key word here is significant as the success of the trade depends on a major move in the underlying asset, which in this case would be the equity option. The trade itself is a net debit trade, since, as you will see we are buying two options simultaneously, which involves a net debit, rather than a credit as in other option trades. For it to be successful, the straddle trade therefore depends on volatility entering the market, either directly in the underlying asset, or indirectly to the market as a whole. The straddle is a direction neutral strategy as it has no bias in either direction. Does this mean we just guess - NO. There are several aspects to the trade which we will consider in a minute, but you will need to understand about online option trading volatility along with Japanese candlestick analysis. I have presented these subjects elsewhere in detail so please click on the links for an overview on these topics.
Now, it is important to understand that there are two types of straddles, the first is a long straddle, and the second is a short straddle. The risk profiles for these strategies is very different. The long straddle is essentially a low risk high reward trading approach, whilst the short straddle is the exact opposite, a high risk limited reward. In my view I would never trade a short straddle as it exposes you to unlimited risk - a thing I never do in my trading. The risk reward profile for the long option straddle is very different and offers you a defined and limited loss, in return for unlimited profits. As with covered call writing this is a relatively low risk options strategy, and it is a trade you can exit if the required volatility does not appear by selling your options back before expiry.
OK, let's have a look at how the long straddle works and the research you have to do in order to find good prospects for this trade in your options trading.
Options trading straddle - next page
I am developing more sites on all the various option strategies so please check back regularly.