Straddle Strategies in Option TradingWritten by Steven T. Ng
The straddle strategy is an option strategy that's based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with same expiration date and strike price. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.Now why would we want to buy both a Call and a Put? Calls are for when you expect stock to go up, and Puts are for when you expect stock to go down, right? In an ideal world, we would like to be able to clearly predict direction of a stock. However, in real world, it's quite difficult. On other hand, it's relatively easier to predict whether a stock is going to move (without knowing whether move is up or down). One method of predicting volatility is by using Technical Indicator called Bollinger Bands. For example, you know that ABC's annual report is coming out this week, but do not know whether they will exceed expectations or not. You could assume that stock price will be quite volatile, but since you don't know news in annual report, you wouldn't have a clue which direction stock will move. In cases like this, a Straddle strategy would be good to adopt. If price of stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. If price plummets, your Put will be way In-The-Money, and your Call will be worthless. This is safer than buying either just a Call or just a Put. If you just bought a one-sided option, and price goes wrong way, you're looking at possibly losing your entire premium investment. In case of Straddles, you will be safe either way, though you are spending more initially since you have to pay premiums of both Call and Put. Let's look at a numerical example: For stock XYZ, let's imagine share price is now sitting at $63. There is news that a legal suit against XYZ will conclude tomorrow. No matter result of suit, you know that there will be volatility. If they win, price will jump. If they lose, price will plummet. So we decide to initiate a Straddle strategy on XYZ stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being closest strike price to current stock price of $63. The premium for Call (which is $2 Out-Of-The-Money) is $0.75, and premium for Put (which is $2 In-The-Money) is $3.00. So our total initial investment is sum of both premiums, which is $3.75.
| | Understanding And Improving Your Credit RatingWritten by ReliefLoans.com
"No man's credit is as good as his money." E.W. Howe, American journalist, novelist 1853-1937The American economy is based on credit. If you don't have at least an average credit rating, you will find that getting approved for any type of loan, or credit card, will be very difficult - if not impossible. As nation's economy worsens, money supply becomes tighter. A major factor looming on horizon is growth in national debt. At this moment, country's deficit is approaching a staggering four trillion dollars! That means something like twenty cents out of every dollar spent by Federal Government goes toward paying off interest on money borrowed! You may be asking what does that have to do with you obtaining credit? Everything! There is only so much money to go around. A common misconception is any government running short of cash can simply crank out more by running printing presses late into night. Wrong! It doesn't work that way. The government, just like a business or individual, has to go out and obtain funds whenever revenues from taxes and sale of treasury notes fall short of expenses. That's easy part. Who wouldn't loan money to Uncle Sam? The hard part is taxpayer has to pay money back! The bigger deficit becomes, more money government borrows. That takes money away from private sector. Of course, that hurts overall economy, and makes less money available for individuals and businesses. It's a vicious cycle that feeds on itself. This is a short, but important report. lt contains valuable information. Read it carefully, and you will have a better understanding of how applicants are rated, and what you can do to improve your credit rating. The "Credit Scoring System" is a nothing more than a numbers game. Most creditors use something like it to rate applicants Like most games, more "points" you score, better you do. So get out a pencil and paper and we will take a closer look at a typical system: The first factor you can't do anything about: Your Age. Yes, you could lie, but don't. With all interlocking computer systems in use today, somebody, somewhere, probably has true story. While it's only one element, if a creditor catches you in a lie, even if it's just about your age, they aren't going to trust rest of information you provide either, and you will probably not get loan. Under 21? Score zero points. 24 to 64 years of age give yourself one point. Over 65? Zero points. The next question is your marital status. Unmarried, sorry pal most creditor's think you're a higher risk, no points for you What's that? You are married? Give yourself one point. Most creditors don't care if you divorced. If you are, and not remarried give yourself zero points. Next question: How many dependents: Unlike Uncle Sam who gives you bigger deductions as your family grow in size, creditors think differently. No dependents? Score zero. One to three dependents? Score one point. More than three dependents? Score zero. The thinking is, if you don't have any dependents you have no attachments, you could skip town, not pay off that loan. You have up to three mouths to feed, chances are good you can't pull up stakes and run away. More then three, you could get in debt over your head so you become a poorer risk again, but for a different reason. Where do you live? In a trailer park, motor home, with parents, relatives, friends? Wrong answer. Same reasons as previous question. You could run, and not pay off loan. You got to put down some roots. Score yourself zero points. Rent an apartment? Give yourself one point. Own a home with a big fat mortgage? Good for you. Score three big ones! Why? Somebody already checked you out pretty good for you to get that mortgage, so you're probably a pretty good risk. Own your home free and clear? Even better. Give yourself four points. You already established you can take on a sizable debt and pay it off, so you get a bonus point.
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