Long straddle alternative

Discussion in 'Options' started by kapw7, Sep 2, 2012.

  1. kapw7


    Let's say we are happy enough to use a long bfly as an alternative to a short straddle (ATM). For example we think ATM IV is very "rich" and we want to avoid "unlimited risk" of the straddle. Assume this compensates for the bfly risk of greeks changing sign, skew risk etc

    What would be an alternative for a long straddle? I feel that the obvious short bfly does not balance very well but I am not sure.

    One exapmle I'm thinking is a portfolio of rich IV/ cheap IV options. The "academic paper" position is to take short / long straddles but these give high variance results. Assume we don't delta hedge, what alternatives could we use?

    (The above is only an example my question is more general than this)
  2. sonoma


    You'll have to configure a position with unlimited reward to mimic the long straddle, so you'll have to be net long option positions. One choice would be a backspread. Another would be a long option with additional short verticals further OTM. In both of these examples, you can arrange the legs such that theta and vega match your needs/expectations. And remember that you don't have to keep the legs in the same expiration series.
  3. No long straddle, no short straddle. How about a selling the strangle?

    Underlying at 30, sell the 20 or 25 puts, and the 35 or 40 calls. Pretty easy, right?

  4. RE: "Long Straddle Alternative"

    Paper trade the straddle, then when (if) one leg hits 2x gain buy that option for real. Exit trade when your P/L has been reached.


    diaoptions has spoken
  5. And then after you collect your dimes you can say good bye to your account when the underling gaps up or down on some unexpected news. Pretty easy alright - LOL.


    diaoptions has spoken
  6. newwurldmn


    Or employee your strategy:
    Paper trade the straddle and when one leg hits 2x pretend that's the only leg you traded.
  7. ???????

    Could you translate to English. You have the writing style of a 2 year old.
  8. newwurldmn


    You know what I am talking about Forex.
  9. kapw7


    Thanks I'll try to "play" on Excel with these suggestions and see how they work.
  10. #10     Sep 3, 2012