The Best Way To Play This Stock

riskfreetrading · Mar 14, 2009

Assume we are on a Friday, exactly 15 days from expiration, and we have an underlying instrument ABC with an implied volty of say 50%. Let us call this underlying instrument ABC. The instrument has call and put chains. Successive strikes are spaced by $1. ABC is trading at $134. We estimate that in one week (between the current Friday, and the Friday a week before expiration) the stock will trade in a range of $132 to $154, and volty would not rise and would likely be in the 40 to 50 % range

What are the best ways to play the estimated range scenario using options? I know that it depends on risk/reward, probs, etc, but I want to know your suggestions.

spindr0 · Mar 14, 2009

To answer a complex question like that, you'd need a competent advisor. To find one, try:

www.trollingmentors

CloroxCowboy · Mar 20, 2009

Here's how I'd play this stock...just give me your gut instinct and I'll do the exact opposite.

On a related thought: Is it possible to add a sticky post to the options section that advises new traders to read through all of riskfreetrading's posts before asking questions? He's contributed such a wealth of BAD information to this board, it may be easier for newbies to look at his "brainstorms" and learn from those mistakes before they talk to any competent traders.

I know when I have a new idea, the VERY FIRST thing I do is make sure riskfreetrading has never written about it!!! :eek:

johnnyc · Mar 20, 2009

long strangle. buy the 132 puts and buy the 154 calls

dagnyt · Mar 20, 2009

Quote from johnnyc:

long strangle. buy the 132 puts and buy the 154 calls

Insanity.

First you don't expect ABC to move beyond those points (that was a given), so to exit with a profit, you must hope you are correct that ABC move near those strikes so you can exit at a good price.

To me it makes more sense to sell that strangle and buy the 131/155 strangle (or the 130/156).

Mark

johnnyc · Mar 20, 2009

Quote from dagnyt:

Insanity.

First you don't expect ABC to move beyond those points (that was a given), so to exit with a profit, you must hope you are correct that ABC move near those strikes so you can exit at a good price.

To me it makes more sense to sell that strangle and buy the 131/155 strangle (or the 130/156).

Mark

was being sarcastic my friend...of course the strangle I threw out there made no sense

dagnyt · Mar 20, 2009

Quote from johnnyc:

was being sarcastic my friend...of course the strangle I threw out there made no sense

Sorry Johnny. I forgot to whom you were responding.

Mark

jwcapital · Mar 21, 2009

Good theoretical problem. If the scenario is your conviction, I would do an Iron Condor: P122/P132 C154/C164. Personally, I would have entered this IC one to two weeks earlier to get more premium, and my body would be wider and wings further OTM. Lastly, I would exit this IC on the Monday before expiration to avoid a gamma explosion.

spindr0 · Mar 21, 2009

Quote from johnnyc:

long strangle. buy the 132 puts and buy the 154 calls

That's sarcasm? Hmmm... I must be slipping. That's a bit too subtle for me.

johnnyc · Mar 21, 2009

Quote from spindr0:

That's sarcasm? Hmmm... I must be slipping. That's a bit too subtle for me.

well, would that strategy have made any sense? trades at a range of 132-154 so neither side goes ITM. Vol doesn't rise either so this strangle would pretty much be doomed don't you think?