10 Jan 08 Profit from Market Volatility using Stock Options
With Infosys Results coming in tomorrow, the market is expected to be highly volatile. However with right use of stock options, investors can actually profit from this volatility. There are option strategies like straddles and strangles which let investors profit from huge one way movements. So in cases where you know the stock prices will move heavily one way, either up or down, but you don’t know which way this huge movement is going to take place, stradles and strangles can be used to make decent profits. However, for these strategies to be profitable, there needs to be a large one side move. If the share prices remain constant, investors will lose money and this loss will be limited to the amount paid as premium to buy the call and the put option. Investors who believe Infosys share prices are likely to see a huge one sided movement, can buy straddles or stangles tomorrow, just before Infosys results are declared.
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what do you mean by straddles and strangles? Please can you elloaborate. I am new to options.