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Strategies & Market Trends : Tech Stock Options
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To: ViperChick Secret Agent 006.9 who wrote (33467)1/17/1998 9:38:00 PM
From: MonsieurGonzo  Read Replies (1) of 58727
 
Lisa; RE:" Short Straddles and Strangles "

BTW - sorry the link is no longer working; try searching for the keyword "murrey"... someone mentioned that. Glad I copied down the table of magic days before it went poof !

If you and I were the CBOE, and our biz was to sell index options - the most profitable option spread we could execute would be either a short straddle or a short strangle.

ie., the DJIA was at about 7700 last options expiry (DEC) - so we would execute a straddle by selling DJX 7700 CALLs and 7700 PUTs - in a strangle, we sell PUTs at DJIA 7500 and CALLs at 7900. We make money if the DJIA is within this range at options expiry (JAN)... guess what ?

That's what happened. Plot the approximate trading range for each index options expiry week since June - and you will see that the boyz in Chicago have been "strangling" options buyers during this trading range.

It appears that, with the DJIA at ~7700, one could execute either the same strategy as the CBOE (a "short strangle", and wait until FEB expiry) or, execute the opposite strategy (a "long strangle") and make money regardless of which way the DJIA moved away from this "pivot" at DJIA ~7700 by closing the position (in about 2 weeks) before FEB expiry, which is more likely than not to be 7700 +/- 200 all over again.

-Steve
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