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Strategies & Market Trends : Advanced Option Strategies -- Ignore unavailable to you. Want to Upgrade?

To: OX who wrote (327)	3/27/2000 4:46:00 PM
From: David Lind	Read Replies (1) \| Respond to of 355

Ox, I've had no problems with downturns and my OTM puts, because typically it isn't too difficult to get a handle on why things are happening if the trade is carefully considered before entering. Maybe I've been lucky, but I've written 24 puts since Jan 1 and haven't lost one despite three corrections. But the gaps and sharp rallies UP are another story. Traders get ahold of a stock and drive it to the roof for no reason other than a momentum play. I was naked calls on two of those recently as part of a spread and a strangle, but I got very lucky and was able to flip to the long side to cover most of my losses before the stocks topped out. It is a position I will not get caught in again. Funny, but in three months of devoting all my time to this, I've found that while it is relatively easy to locate good option trades based on my experience as a position trader, it is extremely difficult to keep trading activity to a minimum. It takes much more discipline and patience than I had imagined. But I am learning. -David

To: OX who wrote (327)	3/30/2000 11:45:00 AM
From: tyc:>	Read Replies (1) \| Respond to of 355

Here is an extract from a PM you sent me in February, in which you very ably described the differences between your strategies and mine. <<"pps. maybe this brings up a good point... I would rather short strangles than straddles since you have a wider profit zone (albeit a smaller overall profit)...." I agreed with everything you said in the PM. However, in my last comment to this thread I made a contentious statement that I thought you might challenge; <<Because the "distribution of stock prices" are NOT log-normal (as the Black-scholes model implies); one must expect far more activity in the "tails" of the distribution curve. This is not something I conjured up, but rather something my reading suggests has been proven statistically. It seems to me that if this is true, AND if the option premiums offered have been calculated according to Black Scholes, then the premiums offered for O/M strangles do not adequately compensate for the risks incurred. And it validates Taxman's "buy OM call" strategy for a bull market scenario. ---