The long straddle is an option trading strategy that traders use to establish a market position no matter which direction the market moves. The long straddle involves buying a call option and a put option at the same time. The options will have the same underlying asset, the same strike price and the same expiration date. Another way to say it is that you will purchase what is called a long call and a long put in this option trading strategy.
A Moving Market
The straddle option trading strategy gets its name because you straddle the market with a put and a call. You are in a market position that can take advantage of a rising or falling market. The risk is limited to the premium plus any trading costs you pay. The strike price of the options should be near or at the money.
For the option to have value in the long straddle option trading strategy before expiration the market must move. It if goes sideways, the option will be worthless because profit comes from changes in the underlying security price.
This strategy is applicable to markets that experience cycles or are expected to move significantly due to anticipated news impacting the underlying asset. If the cycle occurs, then you can take profit on one side of the spread. As the cycle progresses you can then earn profits on the long trading strategy by taking profits on other side of the spread.
To effectively use the long straddle option trading strategy in a cyclical market, you need to have an expiration date that gives the market time to move. Long straddles have unlimited profit and limited risk.
Filed under Option Trading Strategies by on Jul 1st, 2011. Comment. 
If you are going to trade options then you need option trading software. The software gives you full access to the market and can help you track activity, assist with market analysis and even make trading recommendations. Options trading computer program provide price quotes, analyze account positions and help you learn the ins and outs of trading through information.
The best option trading software does a lot more than just spit out results of calculations. You need software that completes the statistical calculations required for in-depth analysis and then explains the results. Other features the option trading software may contain if it is to provide maximum benefits include:
- Ability to enter “what-if” data in formulas to modify output
- Model changing markets
- Test trades against historical data
- Accepts your trading rules and monitors markets using those rules
- Live price quotations
- Charting
- Mathematical analysis
- Portfolio analysis
- Risk vs. Reward calculations
- Market news feeds
- Trading opportunity alerts
- Order placement
- Market interface
- Portfolio tracking and pricing
This is not a complete list but it gives you a good idea of the features to consider in option trading software. The computer program is designed to help you trade and manage options but it does not replace the need to understand how option trading works. The option trading software just makes decision making and portfolio tracking easier.
Filed under General by on Jul 8th, 2011. Comment.
When you are ready to do your first option trade it is sure to be with great satisfaction because you have undoubtedly put a lot of time and effort into studying option basics. Too many investors shy away from options for a long time and with the first trade discover they are a fascinating and challenging investment strategy. Option strategies range from the simple put or call strategy to the complicated multiple option strategy.
Though all investing requires knowledge, when you learn how to option trade you can build on that knowledge to develop the ability to employ more complex strategies if you want. On the other hand, you can also choose to stick with the simpler strategies which many investors do. Sometimes the option trade is chosen mostly to cover an existing stock position.
The point is that you can option trade at your level of expertise making this type of investing challenging and interesting. As you learn more about option pricing features like intrinsic and extrinsic value and implied volatility, you will soon find you are ready for spread strategies.
Keeping track of your options means you must keep track of each option trade on a regular basis. Unlike stock and bonds which you buy and hold options must be regularly tracked so you don’t miss out on a profit opportunity or miss a chance to minimize a loss based on market moves. Many options contracts are as short as 30 days and the market can move fast!
Filed under General by on Jul 15th, 2011. Comment.