heard the word before... what does "straddle" mean? give an example
Investopedia says:
"Straddles are a good strategy to pursue if an investor believes that a stock's price will move significantly, but is unsure as to which direction. The stock price must move significantly if the investor is to make a profit. As shown in the diagram above, should only a small movement in price occur in either direction, the investor will experience a loss. As a result, a straddle is extremely risky to perform. Additionally, on stocks that are expected to jump, the market tends to price options at a higher premium, which ultimately reduces the expected payoff should the stock move significantly."
This definition says stocks, but can be applied to forex as well. I know this is commonly used before big news releases to capitalize on the large move. However, this strategy should be used with caution because of the risk of the price spiking one way and then spiking the other way. This could trigger both the sell position and the buy position, which is not good
.
andersenws
BTW, the definition came from here:
http://www.investopedia.com/terms/s/straddle.asp
"Straddles are a good strategy to pursue if an investor believes that a stock's price will move significantly, but is unsure as to which direction. The stock price must move significantly if the investor is to make a profit. As shown in the diagram above, should only a small movement in price occur in either direction, the investor will experience a loss. As a result, a straddle is extremely risky to perform. Additionally, on stocks that are expected to jump, the market tends to price options at a higher premium, which ultimately reduces the expected payoff should the stock move significantly."
This definition says stocks, but can be applied to forex as well. I know this is commonly used before big news releases to capitalize on the large move. However, this strategy should be used with caution because of the risk of the price spiking one way and then spiking the other way. This could trigger both the sell position and the buy position, which is not good
.andersenws
BTW, the definition came from here:
http://www.investopedia.com/terms/s/straddle.asp
"Youth is the trustee of prosperity." - Benjamin Disraeli
- #3
- Nov 9, 2013 9:40am Nov 9, 2013 9:40am
If they trigger both orders you'll be effectively hedging (provided you not using a USA based broker), when you now hedging it means you'll have to look for the best opportunity to close 1 order in favour of the one you think will be profitable.
When you hedging you will be down number of pips equal to you gap (distance between 2 orders)
Just an additional 2 Cents on an old post
When you hedging you will be down number of pips equal to you gap (distance between 2 orders)
Just an additional 2 Cents on an old post
DON'T TRADE THE DIRECTION, TRADE THE MOVE