Just keep buying until expiration!

Discussion in 'Options' started by China man, Oct 27, 2009.

  1. What is your first gut feeling when recommended this trading strategy?

    Buy an ATM straddle 1 by 1 on $XSP

    When/If market moves to breakeven price
    mark buy another ATM straddle 1 by 1.

    When/If the market moves to breakeven price again buy another ATM straddle 1 by 1.

    Repeat until November expiration.

    If market does not move to profitability on first straddle hold until expiration; do not add, rule applies to second and third positions if reached.

    Hold through expiration for cash credit.
     
  2. Big surprise no responses!
     
  3. u21c3f6

    u21c3f6

    Maybe no one understands exactly what you mean. What do you mean by hold for cash credit?

    Joe.
     
  4. If it goes nowhere, the straddle loses.

    If you keep buying straddles every time you breakeven on the previous straddle (intrinsic value), if the underlying retraces (w/o a big move), you lose.

    You're always going to need movement away from strike to break even on your last straddle purchase.

    Only a huge move well beyond your BE/new straddle purchase will get you anywhere (w/o buying the new straddle) as all previous options on one side go ITM. Sorta like pyramiding.

    I have no clue what holding through expiration for cash credit means uness you're referring to an earlier straddle that's ITM at exp. Then you obviously need to sell to close to get the cash.
     
  5. It's a death wish

    Mark
     
  6. My first thought is that whom ever dreamed it up really does not have much of a foundation in the principles of options.
     
  7. curious to see a backtest of this strategy
     
  8. .

    oops