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Ira,
I agree with everything you said. Selling straddles or strangles
results in limited profit and unlimited risk. The credit spread I
was referring to is selling one out of the money option (put or
call) and buying another one farther out for a net credit. With
volatility dropping from a high level, you have limited risk, you
know your profit potential, and you're able to set the
probability of profit at whatever level you desire. Of course,
it's also very important to select the right exit strategy before
you place any trade.
Tom
-----Original Message-----
From: Ira <ist@xxxxxx>
To: Tom MacDonald <tamacd@xxxxxxxxxxxxx>
Cc: realtraders@xxxxxxxxxxxx <realtraders@xxxxxxxxxxxx>
Date: Wednesday, June 30, 1999 8:20 AM
Subject: Re: 80% probability trades
:I have seen to many people go broke doing just that. Yes, it
will
:generate cash flow over a period of time, but the one time you
are
:wrong, you are living under a bridge. If you are going to sell
premium
:based on volatility reduction and time erosion, why not sell
outside
:combinations? That way you make the time premium on both the
calls and
:the puts. you remain delta neutral and on 2 limit moves you
could be out
:several million if your size got big enough. I have a rule that
I have
:followed for years. Never be short more options then you are
long.
:Always know exactly what your risk is from zero to infinity.
Always
:trade with limited risk and unlimited profit potential. Ira.
:
:Tom MacDonald wrote:
:
:> Using delta neutral credit spreads designed to make money from
:> falling volatility, you can actually choose the % probability
of
:> your trade being successful by the targets you
:> pick...70%...80%...even greater than 90%.
:>
:> Tom
:
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