Hey. This is a question about an investing strategy known as a "straddle". Is a straddle only for options? Meaning I cannot do a straddle strategy for stock trading? I don't know how to get involved in options yet and I have a zecco account for trading stocks only right now. Also, is a straddle a viable strategy for day to day trading? Like, if I think a stock moving +/- 20% in that day, I can straddle it, at like +/- 15% and a cut off (or whatever they call it) at +/- 5% (In an undesirable direction). Would any of this work? I don't claim to know what I'm talking about and I'm pretty confused. Thanks for answers.
You should read my post here about "cheap trading". http://www.elitetrader.com/vb/showthread.php?threadid=190029 In any case, if you wanted to do a straddle on a stock option, right now wouldn't be an ideal time because there was a large movement in the markets yesterday which means the implied volatilities would make the options pretty expensive right now. So, you could have a volatility implosion. I doubt a straddle could be used for day trading. You have larger bid/ask spreads in individual stock options.
From Wikipedia.com, the meaning of straddle: In finance, a straddle is an investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit based on how much the price of the underlying security moves, regardless of the direction of price movement. The purchase of particular option derivatives is known as a long straddle, while the sale of the option derivatives is known as a short straddle. If you are looking for ideas about "basic trading principles, planning and strategy, this may help you somehow... http://stocktraderslibrary.blogspot.com/