Trading Update.

From Greg M

Lions.. trading is a serious business, I think we all know that.

I continue to hear from people buying calls and puts without hedging them. As I have said numerous times, buying options- especially without hedging them is a dangerous game and should only be played like that if you are extremely proficient at doing so.

If you are intent on buying options, most of you should consider hedging the positions by utilizing one of the two strategies below. YES I have put this out several times already, but as I said- many people continue to write to me who are buying calls and puts, UNHEDGED, and losing money. I DO NOT RECOMMEND BUYING OPTIONS! But if you must, use one of the strategies below.

1.     Strangle

The options strangle is an unlimited profit, limited risk strategy. This strategy is utilized when the trader/investor believes that the underlying stock will encounter high volatility in the near term. Significant gains are attainable when the underlying asset price makes an especially strong move either upwards or downwards.

To set up a strangle strategy, the trader/investor will purchase an out-of-the-money call option and an out-of-the-money put option simultaneously, on the same underlying asset with the same expiration date.

2.     Straddle

The straddle options strategy offers unlimited profit, while limiting risk. This strategy is used when the trader/investor believes that the underlying asset will experience considerable volatility in the near term.

A straddle strategy can be set up as follows. The investor/trader simultaneously purchases a call and put option on the same underlying asset with the same strike price and expiration date.