Short strangles on stocks

Quote from IVtrader:

Don

just curious.....did you actually work with Blair Hull at Hull Trading or did you just happen to be trading by yourself, experimenting with these strategies, during that same time period back then
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Blair, my brother, and I were all in the same pits for about 3 years in San Francisco. Many long hours were spent developing new "stuff" - even the "Berkeley Quants" came and went during that time...smart, but had no "street sense" to actually trade live (back then it mattered, not so much anymore of course).

Blair owned "Options Research" of which we were members, and I would get up at 3AM to run dozens of reports with a 300 baud modem running a TI heat sensitive paper "dumb terminal" - can you believe it... I was thrilled when I got up to 1200 baud, LOL.

Blair called us a while back and was thinking aboout getting back into trading, asked us about Bright Trading etc. I invited him to Vegas, but if I recall, my brother met with him in Chicago. Last time I saw him, we were playing "liars poker" for huge dinner check in a nice Chicago restaurant.... I didn't win, LOL.

All the best,

Don
 
Quote from falcon:

Thanks guys for the replies. I have a strategy that I have been testing for quite sometime which involves making adjustments at certain levels, however I like having additional protection in case the unthinkable happens. Would VIX calls or somekind of VIX spread work?
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the profit would be less but the risk contained in don's example,selling 35 puts and 45 calls,or selling the 40 straddle,why not also be long 25 and/or 30 puts and long 50 and/or 55 calls 3/2/1 or 3/1/2,it also lowers your margin,if you plan on trading several stocks/etf's and only use the highly liquid
 
I traded ICs, butterflies and the like for many years on very liquid ETFs with very average results, it really didn't matter what adjustment was made if a big move occured.

What I like about short strangles on low priced stocks with good liquidity and reasonable OI is that not only can you hedge dynamically but also make better adjustments and if need be you can simply own the stock or short sell if strikes are under threat.
 
i traded boxes, lifting legs on spreads and putting them mostly back on overnight,at ,60 per contract,it was great, at $2 per contract it gets expensive,but it's a great way to scalp while being neutral the majority of the time
 
I recommend this trade, it fits your requirements.


  • Red Hat (RHT) @ $49.70
  • Jan 20, 2012 options
  • Sell 45P @ $1.35
  • Sell 55C @ $1.00
  • Buy 40P @ $0.60
  • Buy 50C @ $0.35
  • Credit: $1.40 minus commissions
  • Maximum gain: $140.00
  • Maximum loss: $360.00
  • Hold till expiration OR if RHT reaches $45.00 or $55.00 exit entire trade.


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3,367 people like this.
 
...danger will robinson...e/r on dec 19.....

Quote from ForexForex:

I recommend this trade, it fits your requirements.


  • Red Hat (RHT) @ $49.70
  • Jan 20, 2012 options
  • Sell 45P @ $1.35
  • Sell 55C @ $1.00
  • Buy 40P @ $0.60
  • Buy 50C @ $0.35
  • Credit: $1.40 minus commissions
  • Maximum gain: $140.00
  • Maximum loss: $360.00
  • Hold till expiration OR if RHT reaches $45.00 or $55.00 exit entire trade.


images.jpeg

3,367 people like this.
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Quote from traderlux:

...danger will robinson...e/r on dec 19.....
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Yup ..... I made a mistake by not checking when the earnings are.

Quote from ForexForex:

  • Red Hat (RHT) @ $49.70
  • Jan 20, 2012 options
  • Sell 45P @ $1.35
  • Sell 55C @ $1.00
  • Buy 40P @ $0.60
  • Buy 50C @ $0.35
  • Credit: $1.40 minus commissions
More...
I just noticed a typo, the long 50C should be 60C, the $0.35 is correct.
 
OP, short strangles are like any other strategy where there is a trade off between R/R. Sure you can select stocks that are currently considered rangebound or less volatile but no strategy is fool proof and all adjustments are just that.

IMO sticking with an ETF/index would be most suitable as there are alot less surprises than stocks, maybe something small like IWM or QQQ or even EEM or FXI where hedging with the UL if alot less costly even if commisions and the like will cost you more.

Keep up the thinking
 
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