SHORT STRANGLES - A few weeks ago I posted info on short strangles, a strategy I am enjoying some success with. A few people asked me to keep them updated. For those of you new to this approach, it involves the sale of a call and put, both way OTM of current price. Best stocks IMO are relatively volatile, with price near the center of recent trading range when the position is opened. Volatility permits writing far OTM for decent premies and safety. Recent and current positions:
ERTS(open@86) - Sell Feb 105 Call/Sell Feb 65 Put Total 3.5 points credit (position expired with full premies)
ERTS(open@84 - Sell Mar 110 Call/Sell Mar 60 Put Total 4.43 points credit
EBAY(open@152)- Sell Mar 190 Call/Sell Mar 110 Put Total 4.78 points credit (huge spread here)
LCOS(open@75) - Sell Mar 100 Call/Sell Mar 55 Put Total 1.4 points credit
CCU(open @83) - Sell Mar 95 Call/Sell Mar 70 Put Total 2.25 points credit
If you care to check the charts, you will note that all strikes are far OTM of recent trading ranges. This is due to the high premies that help spreading the strikes away from price.
An interesting variation on this strategy puts a safety net under the strangle, by buying a cheap call and put outside the short positions, thereby protecting somewhat against any violent moves. This is often called an Iron Butterfly, and I may enter a few trades next month. It would permit the short options to be written a little closer to current price for larger premies, which would finance the protection.
My personal opinion is that this market may run relatively flat over the next couple of months, compared to the past few, and this strategy may continue to pay dividends on carefully chosen stocks that are written when they are in the middle of the trading range. One can also add a little up or down bias when selecting the strikes.
-David |
