Edemo, short strangle examples I'm currently trading:
ERTS - Opening price 85.90 on 2/9
Sell Feb 105 Call @ 1.125
Sell Feb 65 Put @ .625
10 contracts yield $3,500. Note that price/strike differential on call is 22% and put is 32% for two weeks of movement. IE, price at expiry anywhere between 105 and 65 yields total premium.
EBAY - Opening price 152
Sell Mar 190 Call @ 2.25
Sell Mar 110 Put @ .94
15 contracts yield $4,781. Price/strike differential on call is 25%, and on put is 38%.
In both cases, and in others I am trading, the calls and puts are outside the respective 50-day bollinger bands, and well clear of recent trading ranges.
The logic of these positions is that they simply add the sale of a call to the usual put sale. But the addition of two premiums permits one to go farther OTM on both sides, than if one just opened one side of the trade. Further, as I mentioned in my previous post, the margin requirement (for Brown at least) is roughly the same as for just one leg of the strangle. So the second option gets a free ride.
You will note that these two positions are relatively volatile, which is counter to the usual idea of doing a strangle on a low volatility stock. However, the volatility is what yields the premium levels which permit a wide range
of movement for the stock during the trading period.
Interested in responses from you or any others who have experimented with such a strategy. If there are none, then I'll be happy to keep the thread posted on results.
-David |
