Lisa,
You are absolutely correct about the premiums eating away when doing a straddle or strangle. The key is whether the volitility in this market is sizable enough, and I strongly feel it is.
I attempted to start my strangle 2 weeks ago with the DJX FEB 77's which I got for 2 3/4 when the market was at 7725 (and on that day the DOW was down 75 points at that time). I wanted to the DOW to move up some to initiate the PUT position to cover the spreads, but then disaster - the DOW drops 275 points for the low of the day and closed negative 220. The next day it dropped another 130 points at the open.
At the time I bought the FEB 77 calls, the FEB 77 puts were about the same price at 2 3/4 (may have been 2 5/8). With the fast decline of about 275 points from where I bought the calls (7725), if I had purchased the PUTS, I believed they would have been about 4.50-5.00.
I strongly believe that I would have made at least 50-60% on the PUTS, conservatively. Well just last week, I sold my DJX calls for 2 7/16 for a slight loss, so this strangle would have worked if I was not looking for 25-50 cents to initiate my PUTS.
Now here is another point. If I had initiated the PUT side and profited as I indicated above. I would have initiated another set of DJX CALLs when the market was down to average my DJX 77 calls. It may not have been the same strikeprice though. Keep in mind that on Monday it was a CLASS 1 BUY day per my system.
I know it is easy to say now, but just wanted to throw my 2 cents in.
Just wanted to add that the idea of a strangle in this market is good but it is the execution that counts.
Lisa, we are about to top off this week and start a pullback. I have already positioned myself with XAL PUTS. If it does pullback quickly to a profitable level, I may initiate Calls to start a strangle. I would not initiate my call position until I saw the technicals on the XAL in the mid range, which would probably mean at least a drop of 10-15 points first. The XAL is one of the strongest indexes, which just blasted into new highs, so it has a very good uptrend.
For just playing the PUTS, I may have gotten in about a day early, but I am very confident that it is very close to its highs and sould top off soon. I had previously indicated that it was a CLASS 1 SELL to get in on Tuesday, actually it is a CLASS 2 SELL, so it can go higher.
Seeya |
