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6

BSC Daily Chart – Long Straddle Example #2

Filed Under Trading Articles 

Source: Quote.com®

 

NOTES ON BEAR STEARNS (BSC)
Long Straddle

1. Starting back in late December, BSC looks like it has had a pretty wide trading range with the stock as low as 93 and as high as 110.

2. These volatile movements are very consistent throughout the viewing period and there does not seem to be a substantial consolidation period in the course of these nine months. Further, there are many long candlesticks, indicating many large range days. This benefits long Gamma positions like the long Straddle.

3. The purchase of a well-positioned Straddle, in this case, will not only allow for profit potential from Gamma trading the range (for you professional traders) but also allows for the ability to profit from the gap openings and hi-lo ranges of the stock.

4. As with all Straddles, the downside here would be a drop in volatility or the passage of time. Therefore, you must be wary of the level of implied volatility. If implied volatility is not too high verses the actual volatility of the stock, then the Gamma / Theta ratio will probably be advantageous for Gamma trading a long Straddle, as in the case of BSC here.

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