How do Straddles work?

Have you ever known a company that was going to get crazy news? Chances are the stock is going to make a big movement. You think, how wonderful it would be if you could buy a Call or Put right before it happens. Keep reading to find out how Straddles work.

The only problem is you don't exactly know if the stock will move up or down during the news event, it does not always go in the direction of the news, bummer.

You think to yourself maybe you could just buy a Call and hope it goes up. Let's see, your gambling a 50-50 shot.

Wouldn't it be nice if you could make money no matter which direction the stock goes? Come with me and learn a dirty little secret, YOU CAN!

A Straddle is a spread that can give you high rates of returns while lowering your risk.

Let's see how it works....

First you have to find a stock with a news earnings coming out soon. We will go in the past for a second and say we think the bottom stock will make a big move during earnings.

It is trading at $55(before the move). You buy both, the $55 Call and the $55 Put.

Now you are able to sell the Call for $10.00 (and the Put is now worthless).

Let me Show You The Money!

$10.00 - $5.50 = $4.50

This means you made 81.8% overnight (not too bad)!

With the Straddle technique you have to first to find a stock that will make a big move. Like all strategies you are learning, the straddle should be well tested before any real money is put into the Stock Market, paper trade my friend.

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