Discussion in 'Options' started by SteveL91, Feb 24, 2004.

  1. Hi all,

    First, I'm new to options; I've been reading/studying for a few months. While I'm not exactly proficient with everything I've studied, I think I have a decent grasp on the basics, and luckily, I picked up on the importance of playing (preying :D ) on volatility early on in my studies.

    With that said, I use Optionetics Platinum software and I've been playing around with it. I really like their Pre-Computed Rankings. One of the rankings is "quiet" stocks; basically, where the short term SV is grossly below the longer term SV. It ends up creating a range bound stock that tends to trade between a very narrow band. I've come up with a few ways to play this in various time frames; one of them being a shorter term long butterfly. I thought this would be a good way to take advantage of the range-bound nature of the stock, but the risk analysis doesn't show this to be a favorable approach. Admittedly, I've only run it on a few stocks, but it didn't come up with a single position I'd take.

    My question: Is this strategy faulty from the get-go or do I just need to look closer, and devise more stringent requirements for entering a long butterfly?

    Thanks in advance, and sorry for the length; I'm notorious for being verbose.

  2. Stocks with low stat volty equate to large debits, high volty = low debits, there's no free lunch. A little TA will help, define the range in the shares over the last month -- if the range on the stock is within the wing-strikes including the debit, then hit 'em!

  3. Besides range bound stocks/indices, long flys are best used on high IV names given the negative vega.
  4. Thanks for the input, guys. I appreciate it.