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 is the Event Trading Specialist for Money Map Press. 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.