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On Nov 20, 2:50pm, Dr. John Cappello wrote:
> I have just been reviewing a methodology that trades one time a month on the
> Monday after option expiration.In essence one would:
> Enter a strangle as follows:
> Sell an S&P call at 1530, Sell an S&P put at 1330
>
> Based on past probability one would keep the premiums and the options would
> expire worthless.One could also protect the position by buying insurance
> call and put at a price that would still make the trade worthwhile.
>
> Can anyone familiar with this type of trade comment on their utility.The
> "back data" looks impressive but I have no way of documenting its
> truthfulness.
You might want to try a test on October 19, 1987 :), though you can
make the case that it would have been a lot worse to sell the straddle
on the preceding Friday, than at the open on Monday, and somehow I
don't think you'd have been selling then either.
One addition, which seems to help improve the odds of the straddle
being profitable is to add an extra check that the index is within a
1%/s on either side of its 20-day EMA. This will filter out cases
where, fairly often the index either snaps back quickly to its EMA, or
breaks out. In both cases the move can be rather strong.
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