CHAPTER 8
Straddles and Strangles
We've found over the years that there are three things rookie investors and traders love in the markets:
1. A good story
2. An opportunity to make big money
3. A clearly defined time frame (the shorter, the better!) to make big money
We've had many long flights made longer by sitting next to a self-proclaimed expert investor regaling us with his claims of knowing the next big thing in the stock market. Typically, after a few cursory greetings and comments about modern air travel, said seatmate will ask, “So, what do you do?” After a brief explanation, the conversation usually moves in one of two directions: (1) “What's your opinion of XYZ?” or (2) “Do I have a hot stock pick for you!”
Traders love hot stock tips. They love to get them and they love to give them, even though they almost always prove worthless. We refer to traders who base their entire strategy on these tips as lottery ticket traders. They'll suffer through hundreds of losing trades while tenaciously clinging to the hope that one day they will scratch the right ticket and hit it big. They usually start off with a short story about a cure for cancer, a discovery of a new energy source, or a revolutionary product about to be released. Not surprisingly, the stock is unusually cheap; as in $.0001 (add zeros to taste) cheap. They tell us that if we were to invest a few thousand dollars into this company's stock (like they did), by (insert specific date here) our investment would be ...
