DITM Bull Call & Bear Put (Debit) Strangle Spreads

J

jones247

Does anyone have solid experience with such a strategy? I've recently began analyzing and testing this strategy. It seems promising...

My biggest concerns are:
(1) keeping the short legs from being exercised before expiration.
(2) adjusting the position once it goes beyond the b/e upper or lower price points.

I guess the easiest solution to #(1) would be to trade only european style options; however, the liquidity is not the best, with the exception of RUT.

#(2) is more of a challenge. I'm trying to gamma scalp with the underlying to mitigate the potential loss amount. However, gamma scalping is not feasible with the Index Options. I guess I could consider the feasibility of long wings.

Your feedback is appreciated...

thanks,

Walt
 
Quote from jones247:



My biggest concerns are:
(1) keeping the short legs from being exercised before expiration.
(2) adjusting the position once it goes beyond the b/e upper or lower price points.


Walt
More...

Walt,

Ditto again.

You should welcome being assigned. Not fear it.

One problem for people who adopt your strategy is not recognizing whether thereis any profit potential in the trade.

I'm mentioning this just to be certain you understand the situation:

When expiration arrives, you will be buying stock at the put strike and selling at the call strike. You will have a substantial cash outlay. Your profit in this trade is limited to the cash you collected ABOVE that cash outlay.

I have seen rookies sell a 20-point spread for $19.80 and think they did something good. All they did is take an enormous risk when the best possible result is a loss of $20 plus commissions plus assignment fees.

Mark
http://www.expiringmonthly.com/
 
Quote from jones247:

Does anyone have solid experience with such a strategy? I've recently began analyzing and testing this strategy. It seems promising...

Walt
More...

Walt,

Out of curiosity, what testing have you done? Have you just looked at indexes, or have you looked at stocks as well? What has made the results promising (i.e. a large % of winners, good % returns)? Did you try to see what the results would have been like if you used ITM or OTM spreads? Also, how long of a time frame have you looked at?

I am interested because I have also looked at spread straddles and have done some mostly OTM or near the money and I always seem to be able to make a small amount of money anyways, but I haven't found any specific rules to go by or anything yet to determine what to look for exactly. Just wondering what you have found in your research.

Thanks,

JJacksET4
 
if you think you are having trouble with short legs getting exercised, you should be more concerned if somebody is giving you free money or are you giving somebody else free money by not exercising the long leg.
 
OTM strangles bear the same P&L as ITM, just cheaper to buy, with better liquidity andbetter B/A spreads. ditto again.
gamma scalping IS possible. e.g. IWM for RUT options (1:10 ratio)
 
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