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I'm game, let's see what can be learned here. Do I correctly assume that
the $1825 cost is for 100 units representing an in-the-money move of
roughly 18 OEX points one way or the other to break even? Attached is
daily chart of OEX with blue lines representing your long call at 795
and long put at 785. Below the flag are two likely retracement levels if
the flag breaks to downside ... 771 (most likely - 14 point IM for put)
and 764 (21 point IM for put). Above the flag is the likely minimum bull
flag expansion at 821 (26 point IM move for call). I would assume that a
fast move in either direction is going to wipe out most of the value in
the other side of the strangle. I don't see a lot of profit potential
here but I'm ready to learn. How would you trade each eventuality?
Earl
----- Original Message -----
From: "Gitanshu Buch" <OnWingsOfEagles@xxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Friday, June 09, 2000 6:41 AM
Subject: [RT] RE: Re: S&P (follow-up) - using options
> >There are times when position traders do well to be flat and this
looks
> >like one of them to me ... 3-4 days of tight ranges in both bonds and
> >spoo suggest that the move out will be explosive.
>
> Here is a good case for the blended use of options, to pick up an
> Earl/Ira/T-Bondo thread:
>
> Stradde-ling / strangle-ing flag type consolidation patterns works
well with
> markets that are expected to break out but directional bias is not
clear.
>
> Both are long volatility positions, and as an initial move help the
position
> trader be setup for a neutral breakout stance.
>
> At yesterday settlement, the
> - OEX Jun 795c 785p strangle settled at $1,825 per lot with the
> - OEX at 785 and
> - OEX about 12.5 points above both its 20 and 50 day ema, and
> - the 795 call strike being the high of yesterday's bar and
> - the 795 call strike being 1.8 points below the flag high, where
breakout
> traders would want to enter long for a new rally presumably to old
highs
> - the 785 put strike being 2 points above the low of yesterday's bar
and
> - the 785 put strike being 4 points above the low of the flag, where
> breakout traders would want to enter short for a downside reversal
pending
> gap filling at 777 and 20/50 ema failure thereafter at about 773.
>
> For someone entering the trade yesterday the better set of strikes
would
> probably be 795c 780p. at $1,625, about 15% cheaper than my current
> position.
>
> In any case, this initial position would open up a few alternatives
down the
> road:
>
> - lift the profitable leg at breakeven or a slight profit and ride the
other
> one into expiration for free
> - in a runaway move one way convert the position into a butterfly for
credit
> - or lock in profits by selling some atm option for the cost of the
> strangle, should the move be that big.
> - and many more, esp if the OEX had an underlying futures contract
like SPX
> and NDX and DJX do.
>
> To try this yourself as an evolving case study, this might be a good
time to
> start experimenting with how you would play the Dow breakout of this
huge
> triangle between 10.8k and 10.2k with the Dow settling yesterday
roughly in
> the middle at the inflection point of all major ma's - chart attached.
>
> Posts to the list preferred, so that the group can benefit.
>
> Gitanshu
>
Attachment Converted: "f:\eudora\attach\OEX1.gif"
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