strangle question
- Thread starter Husky02
- Start date
i've actually been trading the qqq's for a while. my personal view, is we are starting a downtrend( the qqq's had been bouncing around 24-25.15 for awhile and finally broke support). however, with the possible capture of bin laden and the fact we are getting close to the Oct. lows and quite honestly and dont think anyone has grasps on what the US and UN are doing especially in the next week or so and how the market will react. anyway, i could ramble on all night about the uncertainty of the market but i think you get my point. regardless i don't see volatility slowing down and my personal view is that implied volatility is still undervalued, even with the spike in the vix over the last couple of days. my strategy right now is to buy an Apr03 strangle for hopefully less than 2.50(hence my strangle question), and i'm gonna try to play both sides and live dangerously but this market was pretty volatile in the trading market we had for a couple of weeks and now that it's a trending one, i think it could get crazy over the next few weeks...we will see i guess
I leg into Short Strangles.
You could leg in... that's what I do every month on selling strangle/straddles... but you risk missing.
However, IF your view is that a breakout move is imminent... but uncertain as to direction... could enter for a debit you are comfortable with. However you gotta be reasonably sure the move will justify the strategy... and that volatility on a move higher will not work against you.
Also do you plan on exiting the underperforming side, holding or adding? Or creating credit spreads with higher potential return... perhaps. Just some thoughts.
the key, I have found, for selling strangles, especially on the indicies like SPX and OEX is to select strikes that are so far OTM that even if the market experiences a sudden 3-5% move, you are not going to have to go back in and cover with the illiquidity that sets in on these options series. Thus, I find its better to basically just scale strikes that are somewhere around 10%OTM and have enough premium to ride out any brief surges in implied volatility...Obviously, when the VIX is trading in the low 20's, you don't have this luxury because the "wings" are much closer to the ATM strike, but during periods of listless, choppy trading with medium to high volatility, you can do fine just "making markets" at far OTM strikes and profiting from the theta decay...
It's much trickier, if you have no directional bias, to go closer to the ATM strike because you do have a great deal more gamma to concern yourself with and the strikes can just run away from you, especially when there is a "jump" in the underlying...At that point, you are in a very awkward position...
It's much trickier, if you have no directional bias, to go closer to the ATM strike because you do have a great deal more gamma to concern yourself with and the strikes can just run away from you, especially when there is a "jump" in the underlying...At that point, you are in a very awkward position...
I will leg in to the first side to capture the spread. If the spread is $1.00 I will get inside by 10 cents til I get filled. The contract needs to be somewhat liquid. Once that's in place, I will split the bid/ask on the other side and watch it closely. Keep an eye on the TICk while you are doing this to make sure the market is not running away or you're not missing a more profitable entry by waiting a few minutes.