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 …
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.