How Bollinger Bands Can Help You Win with Straddles

How you can use Bollinger Bands to help you find profitable options trading opportunities

Sep 4, 2015 at 9:50 AM
    facebook X logo linkedin


    The key to a successful straddle is to locate a stock that's on the verge of making a drastic price swing either higher or lower. Since a straddle is composed of a long put and a long call at the same strike price, the direction of the move doesn't matter -- only its magnitude. Specifically, you need the shares to make a big enough move to offset the increased cost of buying double premium.

    Bollinger Bands are a technical indicator that can be crucial to your success in trading straddles. To create Bollinger Bands, you draw a line two standard deviations above and two standard deviations below a central moving average (typically, the 20-day).

    When these bands are spread wide apart, it indicates a period of rising volatility. On the other hand, when the bands are pinched close together, the stock is going through a period of contracting volatility. This latter scenario is where you need to start watching the shares carefully for a potential breakout. Once the contraction reaches an extreme level, oftentimes a phase of rapidly expanding volatility will follow.

    Most online investing and trading platforms allow you to plot Bollinger Bands on a stock's chart. When you're researching potential candidates for straddle plays, be sure you check out this indicator to find out where the stock has been and where it might be headed, from a volatility perspective.

    In the best-case scenario, you might find a situation where a stock's Bollinger Bands are at their narrowest status of the past year. This could be a big red flag that a major move is around the corner.

    As a final caveat, always be sure that you're keeping up with the latest company headlines. If there's a buyout offer on the table, the stock will generally remain in a low-volatility trading range very near the offer price. So, before you bet on a volatility explosion, be sure there's no other reason why the shares are range-bound.

     

    Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

    This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

    On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

    Start targeting gains like the ones our subscribers have seen recently, including:

    213.3% GAIN on AutoNation calls
    100.0% GAIN on Monster Beverage calls
    100.4% GAIN on Walgreens Boots Alliance puts
    100.4% GAIN on ON Semiconductor calls
    257.7% GAIN on Dell calls

    101.0% GAIN on Apollo Global Management calls
    103.6% GAIN on JP Morgan  Chase calls
    105.3% GAIN on DraftKings calls
    101.3% GAIN on Airbnb calls
    203.0% GAIN on Shopify calls
    102.0% GAIN on Cboe Global Markets calls
    100.9% GAIN on Boeing calls
    102.1% GAIN on Microsoft puts
    102.3% GAIN on First Solar calls
    101.5% GAIN on PulteGroup calls
    101.0% GAIN on Apple calls
    209.4% GAIN on NXP Semiconductors calls
    100.8% GAIN on Uber Technologies calls
    100.4% GAIN on Academy Sports and Outdoors puts
    102.2% GAIN on Trade Desk calls
    100.8% GAIN on DoorDash calls
    100.0% GAIN on Camping World Holdings puts
    100.0% GAIN on Cboe Global Markets calls
    100.2% GAIN on C3.ai calls
    238.5% GAIN on Oracle calls

     
     
     


     
     

    Rainmaker Ads CGI