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Strategies & Market Trends : Advanced Option Strategies

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To: David Lind who wrote (326)	3/28/2000 8:46:00 AM
From: tyc:>	of 355

I agree with you that at least psychologically the call side of a straddle appears the most hazardous. I would refer though to my original memo on my plans for the Dell Straddle (reply #280). Para 4 read: <<4. When Dells price crosses the line 1 SD above the 50 day moving average, BUY calls in addition to the common; the stock could move up a long way from this position.>> In other words, for me, a naked straddle (or ANY naked option strategy) is not a viable strategy by itself. I believe this is so because "distribution of stock prices" are NOT log-normal (as the Black-scholes model implies); one must expect far more activity in the "tails" of the distribution curve. Recognition of this provides opportunity for profit wherever the stock goes on the upside or the downside. One must try to make money by hedging and thus enhance the profit profile of the straddle. My recent experience with straddles has been interesting, but, I have had enough and doubt whether i shall continue to use the strategy.

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