Straddle Strategies in Option Trading

Straddle Strategies in Option Trading

The straddle strategy is an option strategy that’s based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

Now why would we want to buy both a Call and a Put? Calls are for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?

In an ideal world, we would like to be able to clearly predict the direction of a stock. However, in the real world, it’s quite difficult. On the other hand, it’s relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). One method of predicting volatility is by using the Technical Indicator called Bollinger Bands.

For example, you know that ABC’s annual report is coming out this week, but do not know whether they will exceed expectations or not. You could assume that the stock price will be quite volatile, but since you don’t know the news in the annual report, you wouldn’t have a clue which direction the stock will move. In cases like this, a Straddle strategy would be good to adopt.

If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. If the price plummets, your Put will be way In-The-Money, and your Call will be worthless. This is safer than buying either just a Call or just a Put. If you just bought a one-sided option, and the price goes the wrong way, you’re looking at possibly losing your entire premium investment. In the case of Straddles, you will be safe either way, though you are spending more initially since you have to pay the premiums of both the Call and the Put.

Let’s look at a numerical example:

For stock XYZ, let’s imagine the share price is now sitting at $63. There is news that a legal suit against XYZ will conclude tomorrow. No matter the result of the suit, you know that there will be volatility. If they win, the price will jump. If they lose, the price will plummet.

So we decide to initiate a Straddle strategy on the XYZ stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being the closest strike price to the current stock price of $63. The premium for the Call (which is $2 Out-Of-The-Money) is $0.75, and the premium for the Put (which is $2 In-The-Money) is $3.00. So our total initial investment is the sum of both premiums, which is $3.75.

Fast forward 2 days. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. The $65 Call is now $7 In-The-Money and its premium is now $8.00. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25. If we close out both positions and sell both options, we would cash in $8.00 + $0.25 = $8.25. That’s a profit of $4.50 on our initial $3.75 investment!

Of course, we could have just bought a basic Call option and earned a greater profit. But we didn’t know which direction the stock price would go. If XYZ lost the legal battle, the price could have dropped $10, making our Call worthless and causing us to lose our entire investment. A Straddle strategy is more conservative and will profit whether the stock goes up or down.

If Straddles are so good, why doesn’t everybody use them for every investment?

It fails when the stock price doesn’t move. If the price of the stock hovers around the initial price, both the Call and the Put will not be that much In-The-Money. Furthermore, the closer it is to the expiration date, the cheaper premiums are. Option premiums have a Time Value associated with them. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year.

So in the case where the stock price doesn’t move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large percentage of our investment. The bottom line is: for a Straddle strategy to be profitable, there has to be volatility, and a marked movement in the stock price.

A more advanced investor can tweak Straddles to create many variations. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.

If you want to read more information on straddles and other option strategies, visit http://www.option-trading-guide.com/options_guide.html

About the Author

Steven is the webmaster of http://www.option-trading-guide.com If you would like to learn more about Option Trading or Technical Analysis, do visit for various strategies and resources to help your stock market investments.

Straddle Strategies in Option Trading by Steven T. Ng

Finance

The Loan Process

The Loan Process

Your heart pounds as you don your carefully chosen business attire, hands slightly shaking as they collect your papers, and the realization has finally hit you- the day has arrived. You’re going to meet your maker, or rather, the maker of loans otherwise known as your lender. The hours of meticulous work that has gone into document preparation and researching the loan process will be your armor and first line of defense in this loan battle. The question is, “Are you prepared for what will go on in the actual meeting with the lender?” After reading this article the answer will be a resounding, “Yes”.

The first thing to remember comes from one of the wisest figures in history, your mother. Be on time and dress to impress, after all first impressions are lasting and done almost immediately. Studies have shown that within three seconds of a first encounter, you have already been evaluated, categorized, and labeled. This is inescapable as it is an innate part of human behavior, so you must use this fact to your advantage. Make sure you are impeccably groomed, punctual, and watch your body language. When asked a question phrased in a negative manner, respond conversely with a positive take on that particular area. A word of wisdom…when doing this do not give them the impression of a Pollyanna without being able to support your positive claim. Be an informed Pollyanna!

Secondly, be organized. After all the work you have put into preparing the documentation for this meeting, make sure you have taken the extra time to properly organize your materials. The research you’ve done for your presentation will not be helpful, if you are so disorganized that you can’t find it at the correct moment. If a lender sees you fumbling through a mess of papers while simultaneously attempting to stutter out a sentence, chances are you are not going to make a favorable impression. Make sure you have practiced the presentation of your materials, timing it to be around 20 minutes, and utilize the wondrous thing known as an outline. It will be a wonderful tool for organizing and memorizing your key points. Keeping it to 20 minutes will also allow proper time for Q&A.

After the meeting, follow up can be key. Take a moment to jot a quick thank you letter or make a phone call. This demonstrates more than just courtesy, it shows that you are someone who follows through and keeps you at the forefront of the lender’s mind. If applicable, it could also be in your best interests to invite the lender to your business location and give a small tour. Having a visual can help create a clearer picture of you and your business to the lender.

The amount of time in reaching a decision can vary, but you can help speed things along. By making an informative presentation and creating a thorough business plan, the lender will have fewer questions unanswered. In cases where there are holes in the information, the lender will create a written list that will be sent to you for completion. This process is known as the “paper snowstorm”, which is as appealing as it sounds. The stronger your loan application package, the less likely you will have to weather such a storm.

Once you have all the information to the lender, it will now go to the approval stage. The timing of this will vary by size and nature of the loan, and also by individual lending institutions. Some may have the authority in that office, while others will need to take it to committee. Ask your lender how the loan approval process will work for your loan.

In the event that you receive the loan, congratulations are in order, so pat yourself on the back. Closing will then follow, which will usually happen between days 25 and 45, and will include the lender fulfilling the loan with a cashier’s check, draft, direct transfer, or wire. Overall, the typical length of the loan process can take up to 45-60 days.

Now that you have the loan, what do you do? You need to get back to work and be prepared for the next step in the process, which is going to include the lender keeping a keen eye on you and your business, as well as the collateral that you pledged to get the loan. This is a simple fact of loan life; it cannot be avoided at this juncture. The best steps to take are the obvious and include such things as making regularly scheduled payments, providing quarterly results, and generally keeping the lender abreast of matters involving the wellbeing of the business. Communication is going to be your best offense and defense in this situation. Luckily, you now have your loan and are on the path towards making your vision a reality!

To find out more information about your credit score and what you can do to improve you score visit visit Dyer Consulting Group.

About the Author

Aaron Dyer is President of Dyer Consulting Group, a small business consulting firm that advises business owners on ways to grow their revenues and increase profitability through better strategic planning and financial management. For more information, and also to sign up for Aaron’s future articles, visit www.DyerConsultingGroup.com

The Loan Process by Aaron Dyer

Loans

Emergency Payday Loans – Your Saviour In Situation Of Crisis

Emergency Payday Loans – Your Saviour In Situation Of Crisis

In today’s scenario where individuals have to strive extremely hard in order to meet their daily expenses with their limited resources, emergency payday loans have become a messiah for a large number of individuals. One of the best feature of this loan is that it gets approved instantly.

People, who constantly have to face unexpected expenses and crucial financial requirements often, resort to emergency payday loans in order to save the day. Emergency payday loans offer a simple yet assured financial support to individuals who are often amidst a financial crunch. Some of the most common reasons why people choose to go for payday loans include reasons, such as repairing of home or getting funds for an urgent business trip.

One of the main aims of emergency payday loans is to open the option of financial assistance for individuals who otherwise, are not able to provide for collateral security. The only pre requisite in order to qualify for the loan is to show a proof that the individual concerned does have a regular source of income and secondly, they are an adult.

The amount limit which an individual can seek to obtain from emergency payday loans could vary from 100 pounds to 1000 pounds. However this loan amount has to be repaid to the lenders within a short duration of a week. The best thing about emergency payday loans is that their repayment schedule is designed in a manner which suits the individual in respect to their next due payday. Yet another advantage of emergency payday loans is that no credit checks are accepted by the lenders of this loan whilst they are trying to carry out the procedure for approval of an emergency payday loan. So, all the individuals who have often faced trouble owing to their poor credit history need not worry anymore.

Emergency payday loans are a recent concept which has been introduced in the market, in order to facilitate the individuals obtains much needed cash in emergency situation. The processing of emergency payday loan is done in an extremely short period of time, which allows the applicant to receive the loan amount in their bank account in the shortest possible time. Moreover, the emergency payday loan received by the applicant is absolutely free from all the obligations and restrictions, which means that the individual receiving the loan is completely free to spend the amount in a manner which they may like.

With the introduction of internet and rapid technological advancements, the concept of emergency payday loan has fastened up all the more. Individuals can now apply for an emergency payday loan through internet. All the proceedings regarding the approval of loan take place online as well and the sum is instantly transferred to the account of the applicant upon approval. All that the individuals are required to do is to log in to the site of the lender company, fill in an application form for loan. The loan will be approved to the individual post a thorough verification of all the details submitted by the applicant.

About the Author

Micahel McDonell is a financial adviser and has been dealing with various finance programs. If you want to know more about emergency payday loans, instant payday loans, no paperwork payday loans, Payday loans visit www.instantpaydayloansuk.co.uk

Emergency Payday Loans – Your Saviour In Situation Of Crisis by Micahel McDonell

Finance
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