This company that I’m about to recommend you move in on is about to make a major move. The only problem is that it’s set up to swing either way.
That’s why we’re getting creative.
First, I’ll explain what I plan we do, and then I’ll lay down the dirty details on this company. It’s struggling with some major lawsuits over a recent acquisition, but the stock has been steadily rising over the past week. Position yourself right and you stand to make serious gains no matter what happens next.
Here’s a quick trading lesson, and our next big play…
Straddle Basics
A straddle is a fairly generic strategy.
It means you want to straddle the market or a stock, and that 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.
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. But, at the same time, the earnings have been bad for XYZ and they’re supposed to come out shortly and disappoint investors again.
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, 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.
