Short ATM Straddle

LM3886

LM3886

I'd like to short an ATM straddle for the most premium, not the intrinsic. It is not always possible as the underlying could be at none of the strikes. I could babysit the underlying and wait till it arrives at the strike, but I'm wondering if there are any special order types than can help optimize it and be more efficient. A limit order is a bit contradictory here because it would favor the underlying moving away from strike, opposite to my goal.
 
LM3886 said:
I'd like to short an ATM straddle for the most premium, not the intrinsic. It is not always possible as the underlying could be at none of the strikes. I could babysit the underlying and wait till it arrives at the strike, but I'm wondering if there are any special order types than can help optimize it and be more efficient. A limit order is a bit contradictory here because it would favor the underlying moving away from strike, opposite to my goal.
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If price is currently between strikes, pick the strike you think price is more likely to close near.
The total premium sold will be nearly the same regardless if you sell slightly OTM or slightly ITM.
As an example, FB price is 341.37.
Selling the Aug 340 straddle gets you nearly the same premium as selling the Aug 345 straddle.
Pick the more likely location at expiration.

Another way to look at it.
Lets say a stock is currently 397.5 with strikes at 395 & 400.
If you wait for price to reach 400, the 400 call premium will increase but put premium will decrease so you're selling the same total premium as if you'd sell right now so just pick the most likely expiration strike & sell now. No reason to wait.
 
BKR88 said:
If price is currently between strikes, pick the strike you think price is more likely to close near.
The total premium sold will be nearly the same regardless if you sell slightly OTM or slightly ITM.
As an example, FB price is 341.37.
Selling the Aug 340 straddle gets you nearly the same premium as selling the Aug 345 straddle.
Pick the more likely location at expiration.

Another way to look at it.
Lets say a stock is currently 397.5 with strikes at 395 & 400.
If you wait for price to reach 400, the 400 call premium will increase but put premium will decrease so you're selling the same total premium as if you'd sell right now so just pick the most likely expiration strike & sell now. No reason to wait.
More...
Well, you should caveat that with "all things being equal"... regarding the overall tide.
Premiums move bigtime when market volatility increases.
 
BKR88 said:
If price is currently between strikes, pick the strike you think price is more likely to close near.
The total premium sold will be nearly the same regardless if you sell slightly OTM or slightly ITM.
As an example, FB price is 341.37.
Selling the Aug 340 straddle gets you nearly the same premium as selling the Aug 345 straddle.
Pick the more likely location at expiration.

Another way to look at it.
Lets say a stock is currently 397.5 with strikes at 395 & 400.
If you wait for price to reach 400, the 400 call premium will increase but put premium will decrease so you're selling the same total premium as if you'd sell right now so just pick the most likely expiration strike & sell now. No reason to wait.
More...

Unless you leg in but that would require perfect foresight
 
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