long term call short term put

S

stockoptionstrader

Hi everyone,

Is this strategy a strategy that can work or not:

I'm not interested in any sort of selling options only simply buying calls and puts.

I buy long term calls like 6 months and 1 year to expiration and simultanously I buy a short term put like 1 month to expiration date. If I'm bullish in the long term but I'm not sure if the stock will rise immediately with the short term put I must have a nice protection of my long term calls if the stock doesn't go up immediately.
One extra advantage is also that a short term long put (1 month till expiration) is also very cheap in comparison to the premium I paid for the long term calls I have.

I know it's not a perfect hedge but it reduces my risk well I think. I'm not planning to roll over and buy a put option every next month just in the beginning when I purchase the long term calls so if the stock doesn't go up right away I'm still fine.

Worst case is if the stock does nothing but then again I won't have a big loss on my calls and I won't have a big loss on my puts because the premium I paid for it will be really small. So I will stay break-even.

What do you think?
 
stockoptionstrader said:
Can you explain this more, do you mean when the premiums are very low?
More...

Low and high are relative to actual. If the ATM VOl jumps from 15 to 25 but actual VOl is 30, the 25 is a buy. Then if the VOL drops from 25 back to 15 but the market has reduced stress and movement and now the actual VOL is 9, the 15 is a sale.

Since at any point in time you do not know for sure how volatile any equity or index will be tomorrow, next week or next month, this requires making assumptions based on a reliable data set. If you randomly set out to be long or short a straddle-you are saying the current market is mispricing future changes in the symbol.
 
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