Back on July 4, I got in touch to talk about how and why my Zenith Trading Circle members are enjoying nice gains of 44% per day, confidently playing one of the market's wildest, most radioactive sectors.
Well, we had another whirlwind week with another 100% gain, thanks to one simple strategy I use that puts you in position to clean up whether the stock moves up or down.
It's called the straddle, and Wall Street wants you to think it's complicated, but it couldn't be simpler.
Let me show you how it's done so you can try it yourself…
This Move Plays Both Sides of the Fence
I call this play the "straddle," because you want to straddle the market – or a stock – and you want be on the fence. To play both sides.
In the options world, a straddle typically involves buying a call and a put at the same strike price.
Check out this hypothetical scenario and it'll make perfect sense.
Let's say XYZ's trading at $50.25, and there's a rumor that a private-equity company might make a bid to buy the company, which could potentially send the stock higher.
But… at the same time, the earnings have been bad for XYZ, and they're supposed to come out shortly and disappoint investors again. That would probably send the stock lower.
Entering a straddle by buying the $50 strike calls and the $50 strike puts, with maybe two months to expiration for both the options, means an investor is hoping either the stock races higher on a buyout bid or crashes because the earnings come out in the toilet (so to speak).
It doesn't matter to the investor which way the stock goes, because he's "straddled." He just wants it to do something, something big, in either direction.
If the stock doesn't do anything and stays around $50 by expiration, both the calls and the puts will probably expire worthless, and the investor (trader) will lose what he paid for both.
But if the stock makes a big move either direction, the investor hopes to make a lot of money on either the calls or puts. Enough to cover what he's paid for both options, and then some.
Here's How It Works in Our Trading Service
In Zenith Trading Circle, we put on straddles now and then. But more often, we'll put on "modified straddles."
All that means is that the puts and calls we buy won't necessarily have the same strike price and may not have the same expiration. We're just modifying a typical straddle format to suit what my research shows we should expect.
It's still a straddle. We're still expecting the underlying stock makes a big move one way or the other.
It works the exact same way if you're trading on your own, too.
Typically, when putting on a straight straddle, you can send the order down as a straddle with a price (for both positions) designated. Your broker can then buy both the calls and puts together as long as the total price for them is what you are trying to buy the straddle for, or maybe less.
You don't have to put down the order as a straddle. You can "leg" into the position.
Legging is kind of what it sounds like. There are two legs holding up a straddle. You can buy one side, the calls or the puts, and put down a separate order to buy the other leg.
Generally, when I have Zenith readers put on modified straddles, I want us to leg into each side, to buy them separately.
We want to try and buy them at the same time so we have both legs in place. But sometimes we won't be able to buy one leg (or both) because it's above the prices I recommend we buy at.
There are reasons that may happen. The stock could move before you get the instructions, it could move while you're putting on one leg, or possible other circumstances.
It doesn't matter if you only get one leg and the other leg is above the recommended price. You can go ahead and buy the missing leg if your risk tolerance dictates.
That's fine – as long as you don't pay too much more.
If you don't chase the leg you're not able to buy, that's okay too.
In Zenith, I determine the prices for each leg based on what I think (mathematically) are good entry points, where we can get into the whole straddle and not overpay for one leg or both. If you're trading solo, you can research the best entry points.
Sometimes we'll be in one leg and it will be the right one, sometimes we'll be in on one leg and we'll have wished we'd gotten the other leg.
That's just trading. Sometimes it works out like magic and sometimes you're mad as hell you didn't chase the leg you wished you'd gotten into.
If you are one of my Zenith Trading Circle readers, know that if we don't get into one leg, whether it's within a few days or a week or two, I'll let you know to cancel it or to leave it out there to get filled in due course.
There are times we'll leave orders down there and make a killing on one leg only to have the stock reverse course, and we get into the other leg and make money there too.
And, then again, sometimes stuff happens and we lose out on both legs because we get into both legs and the stock does nothing.
I don't worry about small losses, and you shouldn't either. There'll be another trade along sooner or later.
Shah’s Zenith Trading Circle readers are getting the chance to make a killing following along with his trade recommendations – 1,328% in total gains over 30 trading days, with an average of 44% gains per day including partial closeouts. The daily profit potential is getting huge. Check it out right here…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.