Reading some earlier posts in this forum, I was thinking of a strategy that I might do. What I want to do is to start out with a delta neutral straddle:
Buy 3 QQQ Apr02 37 calls @1.4
Buy 3 QQQ Apr02 37 puts @1.35
$825
Then wait for the stock to move. If it moves up, then I create my first ratio backspread by selling a call.
Sell 2 QQQ Apr02 36 call @2.5
Net debit $325
Then wait for the stock to move down. Then create my 2nd ratio backspread:
Sell 2 QQQ Apr02 38 put @2.25
Net credit $120
The result is that I have turned a decay sensitive trade into a trade that is negative theta and have a resulting huge straddle with a very narrow loss range.
I have a PRBS and a CRBS. These combined look like a straddle.
Question, is this a good or bad idea? Will my broker see the new legs as naked and not allow it?
The numbers I used were for a near month, but in practice I would probably be 60 days out.
Of course another idea would be to buy the first straddle with a far month and then as the stock moves, sell the nearer months. This would create two Tspreads.
what do YOU think ?
Buy 3 QQQ Apr02 37 calls @1.4
Buy 3 QQQ Apr02 37 puts @1.35
$825
Then wait for the stock to move. If it moves up, then I create my first ratio backspread by selling a call.
Sell 2 QQQ Apr02 36 call @2.5
Net debit $325
Then wait for the stock to move down. Then create my 2nd ratio backspread:
Sell 2 QQQ Apr02 38 put @2.25
Net credit $120
The result is that I have turned a decay sensitive trade into a trade that is negative theta and have a resulting huge straddle with a very narrow loss range.
I have a PRBS and a CRBS. These combined look like a straddle.
Question, is this a good or bad idea? Will my broker see the new legs as naked and not allow it?
The numbers I used were for a near month, but in practice I would probably be 60 days out.
Of course another idea would be to buy the first straddle with a far month and then as the stock moves, sell the nearer months. This would create two Tspreads.
what do YOU think ?