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Strategies & Market Trends : Tech Stock Options
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To: donald sew who wrote (35075)2/16/1998 11:16:00 AM
From: Patrick Slevin   of 58727
 
Your "In-The-Money-Overlapping-Strangle",

or for the sake of brevity a ITMOS. (and hilarity, if we start using the term and 300 posts from now a newcomer asks just what the hell we are talking about.)

Is a nice hedge, I thought about it myself during that massive 2 day selloff last October. I was already in puts from the prior week and had no idea where to take profits.

But at first blush it looks to me like all you have really done is hedge a short position. I suppose if you had to put a name on it it might be called a Reverse Strangle. But in theory you have no where to go with this. Your main position is the short and you don't want to close it out so you've just hedged it. If the market stops, or stays between 8100 and 8300 then you've locked in the profit less option premium. Obviously what you wish to have happen is to have the move accelerate to the downside and then be left with possibly repeating your hedge at 7900, for example. Or on the other hand have the market sail to 8500 and then hedge your call.

So what you really are looking for is further market movement, but all you will be doing is buying more options to hedge existing ones. Perhaps something that would be ill-advised, though certainly very tempting.
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