Buy a Straddle

Buy a Straddle With Low Implied Volatility

At this point, if you have not already reviewed the section on Implied Volatility, please do so at this time. It is important that you understand what it is and how it behaves before you read about how it can be used.

This is a safe and reliable strategy that provides a very relaxing (and profitable) way to trade. It can be used by almost anyone and is especially well suited for small traders who wish to become large traders!

Here's how it works:

This technique works best on "Markets With Undervalued Options." (Usually a market that has had little movement one way or the other, causing speculators to feel comfortable that nothing is going to happen. This is one event that causes option prices to become under valued.)

When that happens:

	Buy an at-the-money straddle (a put and a call option at the same strike price).
	The options you buy should have at least 30-60 days remaining before expiration. Remember that time decay accelerates as the option's expiration date approaches, so if you allow more time, you minimize the time decay.
	If the market doesn't go anywhere in a month, close out the position. As will be explained below, you can usually do this for a small loss or no loss at all.
	If the market does make a move, even a moderate one, you should make a nice profit.
	Sounds pretty simple doesn't it? This is really a stress-free way to trade.

It has several big advantages:

	You don't care which direction the market moves. It doesn't matter. You just want the market to move, up or down.
	As the implied volatility increases, it offsets some of the time decay. So, even if the market doesn't go anywhere, you can get out of the trade with a very minimal loss or possibly no loss at all.
	If the market does make a move, even just a moderate one, the combination of that movement along with the increasing implied volatility will increase the value of your straddle, and you make a nice profit.