Thread by @Bjybnf

Telling my 8 years of experience in 5 min. The easiest explanation thread on spread and straddles .

When you buy a put and a call on the same Stock it is called a spread. For
example: Suppose adani ent is selling at 100 and you are in doubt whether it will go up or
down but you want to take advantage of a move. Therefore we
will say that you buy a put at 96 and a call at 104

Let us assume that the market
starts to react and declines to 95, then hesitates and looks like making bottom. Then you
buy 100 shares of adani enterprise, knowing that if it continues to decline you cannot lose
anything because you have a put at 96.

Let us assume that you are right and the market
starts to advance. It continues to advance and before the end of the 30 days Adani ent
advances to 110 and there are 6 points profit in the call that you bought at 104.

You
also still have the stock that you bought against the put at 96. Now, you can sell out 200
shares of stock and call for the 100 shares at 104, which gives you a profit and the call
and your put expires because it is of no value.

Often spreads can be bought very close to the market when you are buying a put and
a call from the same man. On some stocks you can often buy spreads at the market
by paying an additional premium.

As a rule it would not pay to buy a spread except
on very active stocks which have a very wide fluctuation during the 30 days giving you a
chance to operate against both the put and the call during the month.

At least when you buy a spread if the stock moves 10 or 15 points or more in either direction, you are sure to make some money.However, it is not always advisable to spend as much as it
costs to buy spreads unless the market looks like it is going to be very active .

Today we understood spread or straddles in easiest way. I post such threads everyday.
Follow me @Bjybnf for regular stock market learning.

Retweet the first tweet so everyone can learn for free.

#Gann #StockMarket #trading