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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: DO$Kapital who wrote (40805)5/18/1999 5:41:00 PM
From: Jenna  Read Replies (1) of 120523
 
bull'si whoops,... you are right..Straddle.. sometimes my English tends to show its not my first language. Small Fry knows more about straddles than I do, but on a 'thumbnail' it means buying both a put and call usually with the same strike price of a stock.. and when the stock moves you sell the losing position and keep the winning one. If the volatility skew is such that there is a large increased in implied volatility like after an earnings report, you can earn a lot more from the winning position than the difference between the winning and losing one, making up easily for losing one position. example would be QLGC.. the option calls and puts were pretty cheap before earnings.. If one were to buy both 5 calls and 5 puts of the same strike price and expiration, the next morning one would lose obviously, but the winning position (QLGC traded up 18 points ) would far outweight the loss from buying puts and put you way ahead. Its not so clear cut however.. Usually you wouldn't buy 10 calls of each (unless you are more risk tolerant than I am).. and buying only 5 reduces your winning position by 50% gain. But for example today it wouldn't have been entirely a bad idea to buy both a put and call on DELL.. for 1 9/16 or so..
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