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My First Straddle

Provocative title, eh? Actually, this is yet another post about options trading. :) A straddle is an options strategy where you buy a call AND a put for the same security, with the same strike price and expiration date  on each one. The idea is that if there is a big price move you can sell the losing option and ride out the winning one.

I didn't set out to do a straddle. Yesterday I purchased a put on DIA based on my usual criteria. The Dow was up for the day but starting to go down. I usually make money buying DIA puts this way. Alas, the Dow skyrocketed after my purchase.

I was planning on selling the put and cutting my losses this morning. Then it occured to me if I bought a call (which moves in the same direction as the underlying security) I might be able to offset the loss from the put if the Dow kept going up.

I'm not sure how well this is going to work. This is the first complex options play I've ever made. In the next few days I will see if it was a better choice than merely cutting my losses.

If this turns out well, I might try other complex options plays. Maybe I can draw people in with a post about my first iron butterfly.