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How to trade the news with an option's straddle
Trading the news is a hot topic for most traders. The market moves fast and big profits appear accessible. But there are hazards involved in trading during a news event. Whipsaws, widening spreads, gaps, and other dangers await the brave trader willing to take it on. Of course, there are some folks making money this way but it can be tough. The biggest disadvantage for me is that in order to trade the news you have to be there. I am not always that keen to get out of bed at 3:00AM to trade an announcement in the UK. Depending on where you live, you can probably sympathize. This Thursday we are waiting for some comments from ECB chairman Trechet. This announcement is often followed by good price volatility and if we are willing to give up some potential profits, there is a way for us to plan ahead and try to take advantage of the opportunity. What I am suggesting is an options straddle. If I buy a call and a put at the current market price now, then I will have the potential to profit when the market moves after the announcement. This way it doesn't really matter what direction the market moves as long as it moves a lot. The added benefit is that my maximum loss can only happen if the market closes at expiration on the exact strike price of the call and the put. Since that is extremely unlikely, this is a good way to build in a little risk management. To see the video, click here: [url]http://www.pfxglobal.com/index.php?option=com_content&task=view&id=1188&Itemid=117[/url]
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