DITM strangle?

Discussion in 'Options' started by serrow, Jun 6, 2007.

  1. THATS my point...if the stock moves up that much then the gut strangle will NOT be worth MORE than you paid for it because of both time decay and drop in volatility. The numbers are theoretical based on a static volatility, reality is volatility changes.
     
    #21     Aug 11, 2007
  2. Apart from the numbers, which I thing are not solid, what you did was wait an entire month for the (gut) strangle to increase from 12.65 to 13.50, a staggering 0.85 profit. Instead of cashing it, you decide sell a 45 straddle on top of it.

    You should ask yourself, why the strangle, why wait 30 days, why sell a straddle at 45 now? These are the separate decissions you made, you have to know why you make them.

    Ursa..
     
    #22     Aug 11, 2007
  3. ajna

    ajna

    lowvol,
    I think you're making this more complicated than it should be. To win on a long straddle/strangle you essentially need the underlying to move around a lot and have vols rise as well. Some people try to reduce their daily decay by gamma scalping, but that's a whole other complication. My rec, if you determine a certain event is upcoming that will cause your underlying to move hard and vol to rise, then trade the long strangle into that event. But get the hell out fast as soon as you realize your prediction is wrong. Trading vol is as hard as trading direction. Adjusting your position into other configurations seems nice, as long as it conforms with your expectation of what will happen to the underlying direction and vol in the future. If not, exit with your profits and look for the next opportunity.
     
    #23     Aug 11, 2007
  4. spindr0

    spindr0

    The math is not correct. Long strangle costs 12.64 and after the rise and sale of the long put (+2.88) and sale of short 45 call (+3.38), he ends up with a ten point 35/45 call diagonal that costs 6.38, not 30 cts. If the underlying reverses hard, 6.38 is at risk.
     
    #24     Aug 12, 2007
  5. yep...
     
    #25     Aug 12, 2007
  6. zdreg

    zdreg

    don't worry. whatever you lose on every trade you can make make up in volume.:)
     
    #26     Aug 14, 2007