How Would Trade This?

[tradingjournals]

Assume there is an estimation with 95% confidence that an index would trade in a range below 183.50 (on the upside), and down to 174 on the downside within the next 3 months. The index is currently at 181.

How would one trade such index under the hypothesis the estimation is accurate?

 

[cdcaveman]

Quote from tradingjournals:

Assume there is an estimation with 95% confidence that an index would trade in a range below 183.50 (on the upside), and down to 174 on the downside within the next 3 months. The index is currently at 181.

How would one trade such index under the hypothesis the estimation is accurate?

Iron fly, or butterfly.. sell meat buy wings..

 

[nazzdack]

Quote from tradingjournals:
----95% confidence....
----index would trade in a range below 183.50 (on the upside)....
----down to 174 on the downside within the next 3 months.
----index is currently at 181.
----How would one trade such index under the hypothesis the estimation is accurate?

You could be a little "bolder" and just "sell the meat", i.e. short-sell the 180-straddle or the 175/185-strangle......and pray.

 

[tradingjournals]

The upside estimate is below 183.50, but the downside estimate is NOT above 174. It could go to 165.

 

[drownpruf]

Quote from tradingjournals:

The upside estimate is below 183.50, but the downside estimate is NOT above 174. It could go to 165.

Go short Euro and lose 200 pips. Oh, you did that already.

 

[nazzdack]

Quote from tradingjournals:
----downside estimate is NOT above 174.
----It could go to 165.

Stop changing the rules and moving the "goalpost/net"!

 

[drownpruf]

Quote from tradingjournals:

Assume there is an estimation with 95% confidence that an index would trade in a range below 183.50 (on the upside), and down to 174 on the downside within the next 3 months. The index is currently at 181.

How would one trade such index under the hypothesis the estimation is accurate?

March 160/170/180P fly from 1.64 mid (SPY vols).

 

[drownpruf]

An asym fly would also work if you're looking purely at path-independence. The SPY 168/174/187 in puts, 231 ratio BUY from 3.51 mid. Decent vol-edge out to term (VolSum * delta = 200bp). Not chosen due to your mid-strike assumption: