Bollinger Bands and Straddles

Discussion in 'Options' started by kalikahuna, Aug 28, 2008.

  1. Hey guys,

    So I was thinking about some new strategies to keep things exciting. So, I know that some ppl have used Bollinger Bands to predict when price is about to move and then put in Straddles when the BBs are greatly contracted. Taking the NDX as an example. The last week of july, NDX was stuck between 1800 and 1850 and the BBs contracted a lot. This was followed by a huge move upwards, thus a properly placed Straddle would have made some good money over following 2 wks.

    One question is: How many months out do those that do this purchase their put/calls to protect against time decay? At what point, if the underlying doesn't make a move and stays in a constricted BB for awhile do they say f' it and exit out w/o a profit? On the flip side, what are some good exit signals when it does move to ensure profit (other than closing out half your position and letting the rest ride a little more).