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I buy straddles and sell strangles. I use these as buying/selling
volatility strategies.
Straddles (buying low volatility): I look for equity options with low
implied volatility relative to their typical implied volatility then put on
the straddle in anticipation of it returning to its "normal" volatility,
which increases the value of the straddle. I do not hold these things until
they expire, but usually only 2-3 weeks at most, because if they do not get
a pop, I don't want time to eat away my position. If you buy with 3-4
months of life left in the options and then hold it for a couple of weeks,
you're not going to lose a lot of money should you be wrong. Earnings are
one good thing to key on to give options a pop. The problem with this type
of trade is that you have to have some way to rank the current volatility.
Without it, you won't know how the current volatility is compared to its
typical volatility. I like this strategy a lot.
Strangles (selling high volatility): If you're the type to sell uncovered
options, this can be a nice strategy. Look for options with high implied
volatility relative to normal and sell the things in anticipation of a
return to normal volatility. Probably want to do this with no more than a
month of life left in the options. An added advantage to this is that time
is helping you, as the seller. Be careful with this strategy, oftentimes
there's not much room for error.
There's more to these strategies than this, but this will illustrates the
basics.
Good trading,
Gregg Murray
At 05:10 AM 11/16/97 +0000, Dick byrd wrote:
>w.murray wrote:
>
>> Has anyone had any experience using option straddles and strangles? If
>> so
>> what has been your experience? Thanks
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