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Many of the options trading strategies I have shown you have been directional trades. That means the option position requires the underlying stock or exchange-traded fund (ETF) to make a particular move in price – either up or down – for the trade to work.
And that's exactly what makes directional trades so challenging – trying to predict which way a potential trade will go is difficult. You can plan your trades carefully, follow your rules to the letter, and still the markets can intervene, turning a perfectly good prediction about a stock's direction into a losing trade.
What's more, indecision about a stock's direction – and whether you want to buy calls or puts – can delay your trade, causing you to miss out on your predicted move.
How would you like a strategy that allows you to place a trade that doesn't care which way it moves, just so long as it moves?
That's what I'm going to show you today…
Profit No Matter Which Way a Stock Moves
Non-directional traders don't need to worry about making predictions based on complex market data, pages and pages of stock charts, or anything else. Non-directional traders make trades to benefit no matter which direction a stock moves… so long as it moves.
How? You might think you need to take two separate trades, one a long call and the other a long put.
That's almost correct…
The straddle is a non-directional trading strategy that incorporates buying a call option and a put option on the same stock with the same strike and the same expiration.
A straddle allows you to have a bearish and bullish play on a stock at the same time, with each acting as a hedge or insurance against the other, so long as the underlying stock moves up or down in a big enough price move to cover the cost of the trade.
Now, I should point out that the cost of a straddle is considerably more than a straight bearish or bullish options play – because instead of just buying one option, you are buying two. Since cost is risk, the straddle trade has an increased price risk over the directional options trade because of this.
But your odds of making money are greater.
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About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.