Quote from ryanpatrick:
You know what, that's interesting. The next strangle play I make, I'm going to take that to the test....1 straddle and 1 strangle trade on the same earning play just to see the results.
Ryan,
That's interesting that you mentioned straddles and strangles.
In the 1990's my wife and I would place a new set of 4 straddles or strangles every month after expiration.
We learned from Don Fishback and then as we gained experience we applied some of own refinements.
This wasn't our primary trading method (buying long calls and puts was on), it was just a monthly sideline.
Here's what we learned:
1: Find a stock that normally has a good monthly price range, but has recently gone quiet for some reason. This usually means its closer to its 52 week low for implied volatility than its 52 week high. That will give you the cheapest options to buy.
2: Don't spend more than $250 for a call/put pair (under $2 is even better). Remember, the stock's price movement needs to be high enough to overcome your total call/put debit.
3: Don't buy less than 2 months time before expiration. That way
you can let the trade play out for a month and if nothing has happened 30 days before expiration, close the trade (a time stop).
Here is an example of what I am talking about:
YHOO stock price 15.98
YHOO APR 16 CALL at .87
YHOO APR 16 PUT...at .86
TOTAL DEBIT................. - 1.73
Look for the stock to be in the middle of its trade range (look at attached YHOO chart.
YHOO currently has an 8 point trade range (11-19).
Let the stock move in one direction at least enough to pay for the entire debit and sell that direction, and then let the stock move in the other direction and sell the other half of the trade when you have a +50% to 100% profit on your total debit.
Jeff
