Selling ATM Straddles

No, thank you.
It's not often that I get it right!

 

I'm surprised.

I would think prob favors the writer with expectancy being neutral.

 

While the OP asked about the probability, I do believe he was referring to the expected return which is theoritically the same.

Joe.

 

Correct.

 

Maybe I get it now.

Theoretically, yes selling the straddle will end up with more winners than losers. However, the total dollar value of the losing trades will be the same as the total dollar value of the profitable trades. Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even. Is this correct?

 

http://www.isigmasystems.com/eva.html

nitro

 

Yes, assuming that the straddle buyer and seller are trading at fairval. The $expectancy is equal.

 

"Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even."

Minus commissions and spreads.

Joe.

 

So why is selling a strangle better than selling a straddle? According to you, the strangle also has risk odds of 1 to inifinity.

 

it is not.

selling a strangle offers just a better prob of success because the BE points are placed beyond 1 standard deviation. so instead of 68% prob of success, you might get for instance 95% prob if wings are placed at 2 SD.

but the odds (expectancy) is the same, that is, zero-slippage-comms.