Deep in the money call and put with stop losses?

M

Mattheweaston

Hey guys,

pretty new to options but was curious if this is a legitimate strategy?

What if I bought a long deep in the money call and put kinda like a straddle, with a trailing stop loss?

the hope being the stop loss kicks in when the underlying takes its direction getting rid of the loss leg and leaving you with a profitable position.

I can imagine it's crucial where you pick your stop losses, too tight and both could be triggered, too loose and too much of a move is required to be profitable.

how would you guys choose where to put your stop losses?

I would try this with SPY etf due to the volume and the tighter bid/ask spread, if someone has a better underlying let me know!

If anyone has tried this let me know if you were successful, or why I shouldn't try this.

Thanks.
 
I think the spreads will always be wide and what if not one willing to let you out till expiration? You lose all the extra premium. I always think before getting into anything, what's the downside, what's the risk?

By backtesting, many of your questions are answered so best you learn to program then you know the answers. And each stock/ETF has it's own personally, so what works in one might not work in another.

I prefer to trade markets that I can get out. It reminds me of a friend I have in North Dakota, he tried for years to get me to build houses to rent out near where they frack for oil, he built 20 odd houses and rented them out, he now going bankrupt cause none of them are rented out and no one to buy them. NOW, I am interested in waiting till the mortgage companies get them and offer dumb price to buy them. And he knows I make an offer for them and asked if he could manage them for free rent of one of them. We still friends, but shows that if you can't think of the risk of an investment, you become that risk.
 
I would strongly suggest you read about put-call parity, to begin with... Then, as the next step, I would read about what's known as a "strangle". You can proceed from there.

And don't worry about "not one willing to let you out before expiration", as that's not how options work.
 
The only way to know is to try your strategy with real money in the markets. You don't need permission from anonymous internet users who're more than likely lying about their trading experience.
If it works out don't share your secrets with others. Your risk, your money.
 
I understand the basics of options haven't even dabbler with paper trading ( on my education list as I do find it a fascinating market) ... But isn't trying options with real money without proper education like holding a ticking time bomb?

All it would take is the wrong selling of a naked put/call and your going to end up writing a Cheque to the broker? Seems like horrible advise to just suggest throwing someone in there.

If be hesitant to suggest that after seeing that guy that owed his broker 100k from his short position in KBIO or whatever it was. Apparently was trading and didn't know he could lose more then what was in his account.... People need to know the worse case scenarios and the possible risks.
 
The thing is with options, the underlying doesn't even have to move an inch before you start losing your money. Do you know how options actually work?
 
shazam75 said:
The thing is with options, the underlying doesn't even have to move an inch before you start losing your money. Do you know how options actually work?
More...




Not really an issue for DITM options, as in the OP's case.




:)
 
You must log in or register to reply here.
Back
Top