Short strangles on stocks

iceman1 · Dec 2, 2011

Quote from Strangler:

You might want to rephrase or elaborate on your question.You can do a short strangle strategy on any stock with an options market, so answer to question #1 would be "all of them" or "thousands of them".

to the opening poster:

D U H

Grinder · Dec 3, 2011

come to think of it.. even if you had a whole range of different stocks from different sectors and say some strangles did better than others you still won't be able eliminate the risk of any one of those stocks going belly up due to a number of reasons, thats just the risk you take when trading stocks. It seems an ETF is your best bet, if one exits that fits your criteria.

IVtrader · Dec 4, 2011

Quote from falcon:

I'm looking for a bunch of stocks that have low vol and are low priced which will stay in a range so I can apply a short strangle strategy on them. If they are uncorrelated from different sectors than some will perform better than others as the market moves, but overall they all need to survive a market crash. An ETF would be suitable but one doesn't seem to exit.

if you are seeking stocks that will benefit from a short Strangle(benefits from high IV)rather than a long strangle(benefits from lo IV)AND have low correlation,then you could filter all stocks found at Livevolpro with the correlation feature at Sectorspyders or Macroaxis.com

but you'll need to be a subscriber to Livevol unless of course you already have a IV screener

spindr0 · Dec 4, 2011

Quote from falcon:

I'm looking for a bunch of stocks that have low vol and are low priced which will stay in a range so I can apply a short strangle strategy on them.

Try utility stocks

falcon · Dec 4, 2011

Quote from IVtrader:

if you are seeking stocks that will benefit from a short Strangle(benefits from high IV)rather than a long strangle(benefits from lo IV)AND have low correlation,then you could filter all stocks found at Livevolpro with the correlation feature at Sectorspyders or Macroaxis.com

but you'll need to be a subscriber to Livevol unless of course you already have a IV screener

Thanks for the two links, they both look quite interesting. I've been looking at the utilities and consumer staples ETFs as they both seem to fit my criteria except that there doesn't seem to be alot of liquidity. Individual stocks from both sectors might have to do, thanks again.

eusdaiki · Dec 5, 2011

Quote from ForexForex:

Dynamically Hedge. Never heard that term before, sounds expensive. Dynamic is something that changes constantly so would this mean buying/selling as the market changes?

Is this math formula correct? Dynamically Hedge = Account Churning

Dinamic hedging is one of the many impossible yet fundamental assumptions of the black scholes PDE.

it was put into practice a few years ago, it is partially blamed for the 1987 crash and also for the collapse of LTCM...

it normally works like a charm, but produces an abnormally large hole in the ground if it encounters any sort of abnormal situations...

ForexForex · Dec 5, 2011

Quote from eusdaiki:

Dinamic hedging is one of the many impossible yet fundamental assumptions of the black scholes PDE.

it was put into practice a few years ago, it is partially blamed for the 1987 crash and also for the collapse of LTCM...

it normally works like a charm, but produces an abnormally large hole in the ground if it encounters any sort of abnormal situations...

You can put "lipstick on a pig" but it's still a pig. How is dynamically hedging different than churning an account?

falcon · Dec 6, 2011

Ok.. so the consumer staples ETF (XLP) seems to fit my criteria the best, there isn't much volume to speak of but lots of OI across many strikes.

I'm dubious about being able to get in and out of positions with such low liquidity, is that a legitimate concern when the bi/ask spreads seem relatively tight?

eusdaiki · Dec 6, 2011

Quote from ForexForex:

You can put "lipstick on a pig" but it's still a pig. How is dynamically hedging different than churning an account?

Main difference tends to be the number of people with a Phd involved in managing the account

falcon · Dec 9, 2011

I've been watching the XLP and although there doesn't seem to be alot of options action I was willing to consider it for my strategy, however I have since discovered the margins for strangles are much higher than that of stocks.

I also got my hands on a screener so I was able to filter it down to 3 stocks that traded in somekind of a range with enough options vol and liquidity to make it worth while, however I noticed the occationally large gap or decline that makes me shudder.

So heres a thought.. If I choose a few stocks that have good liquidity with low vol I can them trade strangles and also use Vix calls for a little insurance.

What do you think?