What if you’re not sure about the direction of a stock, but you feel sure that it’s going to move significantly in one direction or another? Trading options gives you the ability to make low risk-high reward without getting the direction right! The two strategies we discuss in this chapter are straddles and strangles, which are both direction-neutral strategies.
The straddle involves the following steps:
Step 1 Buy at-the-money (ATM) strike puts.
Step 2 Buy ATM strike calls with the same expiration date.
This is a net debit transaction because you are paying for equal numbers of calls and puts. As such, the straddle is an expensive strategy in terms of a cash requirement. However, if you ...