Track 'n Trade Futures End of Day Options
Buy a Straddle
In this Track 'n Trade Pro Options trading training video, I want to talk to you about buying a straddle with low implied volatility.
What we do, is we buy an at the money straddle. To do this, we buy a Put and a Call Option at the same strike price. This is a safe and reliable strategy, that provides a very relaxing and profitable way to trade. It can be used by almost anyone. It's especially well suited for small traders.
Here's how it works: This strategy works best on markets with undervalued Options. Usually a market that has had little movement, one way or the other. Causing a speculator to feel comfortable that nothing is going to happen, anytime soon in the near future. This is one event that causes Option prices to become undervalued. When that happens, the Options you buy should have at least 30 to 60 days remaining, before expiration.
Remember: The time decay accelerates as the Options expiration date approaches. So if you allow more time you minimize the time decay. If the market doesn't go anywhere in a month, close out the position. As I'll explain in a minute, you can usually do this for a small loss, or no loss at all. If the market does make a move, even a moderate one, you should make a nice profit. Sounds pretty simple, doesn't it? This is really a very stress free way to trade.
This strategy has several big advantages. One is: You don't care which direction the market moves. It doesn't matter. You just want the market to move, up or down. As the implied volatility increases, it offsets some of the time decay. So, even if the market doesn't go anywhere, you can get out of the trade, with a very minimal loss, or possibly no loss, at all. If the market does make a move, even just a moderate one, the combination of that movement along with the increasing implied volatility will increase the value of the straddle, and you make a nice profit.