I expect oil to trade at 70 or 85 in two weeks. The OIH ATM long straddle is trading at around 15 and the risk / reward doesn't look promising. What option strategy would you use for this trade? Thanks!
You're sort of comparing apples to oranges. The Oil Services HOLDRs does not follow the price of oil tick for tick on the short term. Oil could be at "70 or 85 in two weeks" but the OIH could trade flat or move in the opposite direction of oil.
The title of the thread doesn't match up with your post To short a straddle with capped risk = long butterfly short body (the straddle) + long wings (a strangle) This position, like the short straddle wants the underyling to sit still (short vega, short gamma) and be range bound preferably to body strikes at expiration. I'm not clear on what your forecast is for OIH? Higher volatility? Large move? The long butterfly is not what you want for that forecast. MoMoney.