Hi all. It's my first thread in this forum, so please warn me if I'm making any behavioural mistake. I'd like to tell you the following options' strategy in order to gather some ideas and critics about it. (*) This strategy can be used only on instruments whose volatility behaviour is affected by strongly skewness (i.e. during panic selling the implied and historical volatility reach their maximum, during positive trend the implied and historical volatility is quite low) like equities and equity indexes. Strategy requirements: 1. we calculate an arithmetic average on the last 1,500 ATM Put implied volatility daily observations (I suppose we have an historical dataset); 2. we calculate the positive and negative semistandard deviation from the mean (technically speaking we say "lower/upper partial moment") of the last 1,500 ATM Put daily implied volatility; 3. the implied volatility term structure must be as much as possible flat or negatively sloped. Operations: We check the ATM Put implied volatility. If it's 2 semistandard deviations below the mean, we check the requirements. If the requirements are checked, we buy a DOTM strangle at the longest expiry date which market makers allow. We sum up the premiums paid for the strangle and we divide this amount by the number of months between the DOTM strangle expiry date and today. For example: suppose we pay $ 18 for the strangle by buying $ 8 DOTM Call and $ 10 DOTM Put; suppose the strangle's expiry date is on March 2012. So we make: 18 [$] / 9 [months] = 2 [$/month] Then we will sell each month a Put whose expiry date is the next month. We will choose the strike price which will allow us to earn on average a $ 2 premium. Let's see what could happen in the future: - strong positive trend = the strategy is totally self financing, maybe the DOTM Call will appreciate slightly but the Gamma curvature is very weak so it's likely the Theta will consume the strangle's premium. It will earn just if the trend is very strong and the DOTM Call will be ITM at expiry date, but we can earn also if the underlying movement is very fast and we gain Vega if we sell before expiry; - weak positive trend = read above, the premiums are lost but we have sold 9 Puts during the previous months and we've financed our long position. Low Vega; - no movements = weak positive trend; - strong negative trend = panic selling = our DOTM strangle will gain a lot of Vega ("Taleb's effect" or "Black Swan") and we make a lot of money. The short Put will loss, but the gains from the long strangle will cover these losses. We have just won the lottery - weak negative trend = this is the only case, according to my view, the strategy can loose. In this case the strangle is consumed by Theta and Gamma + Vega is not enough against Theta. We loos the strangle premium and the sold financing Put makes other damages. But... If you do in way to sell OTM Puts each month to cover the strangle's premium, this case is very unlikely. Why? Because of (*). This event is very rare, because, in order to make the sold Put ITM, the underlying movement, according to the past history, should be quite fast. If so, we are in the "strong negative trend" environment, and we win. Thank you very much for having read this!