Explore Your Options by Tom Gentile
TO STRADDLE OR NOT TO STRADDLE
Why not just buy a straddle into an earnings report, attempting to profit on either side?
While this sounds like a great idea, it is not always the case. This month, I want to review straddles but in particular, I want to show you when not to use one. The straddle is a nondirectional strategy in which you buy an at-the-money call and put with the same strike price and expiration date. The combined cost of this option strategy is double what it would cost to simply take a side, but its also a nondirectional view. This sounds simple and I think this covers the basics of it. Ill show you an example of buying a straddle just before earnings, with none other than one of the most popular companies in the world, Amazon.com, Inc. (AMZN)...