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The trade is classified as a "long butterfly".
Indeed it can be profitable....as some of the options gurus who are claiming
90% win-rates use this strategy.
Still, you will be unprofitable with this strat at expiration if OEX goes
"outside" of 620 or 630 as the short call or short put position will go
against you and your long positions act as "stops".
Also, if volatility soars after this trade has been established, again, your
short in-the-money option positions will go against you (higher) more than
the out-of-the-money long positions.
Best to throw this up in an Option evaluation program.
> -----Original Message-----
> From: caw [mailto:cwest@xxxxxxxxxxxx]
> Sent: Saturday, June 16, 2001 9:45 AM
> To: OmegaList@xxxxxxx Com
> Subject: please criticize this hypothetical trade
>
>
> On Friday I noticed that OEYGE (Jul 625 calls) and OEYSE (Jul 625 puts)
> closed for a combined premium of $36.60, and that OEYGF (Jul 630
> calls) and
> OEYSD (Jul 620 puts) closed for a combined premium of $29.80. If
> one were to
> sell the straddle and buy the strangle, the net credit, excluding
> commissions, would be $6.80, and profitability would be $1.80
> assuming that
> either one or the other leg of the straddle was assigned. Is this
> not a free
> lunch? What have I missed?
>
> Colin West
>
>
>
>
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