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Sorry I should have said it decreases the degree of losses relative to the investment. I mean buying both options ITM btw. It requires a bigger investment, but the profit potential is still unlimited while it is impossible to lose 100% of your investment. Both options have intrinsic value, so any intrinsic value you lose on the call is added onto the put and vice versa.
Since the options are both in the money, your exposure to high IV prior to earnings is greatly reduced.
As for the calendar and wide bid/ask spreads: no reason to close calendar yet because I think the price will continue to improve. The wide bid/ask spreads aren't necessarily a problem because I know AAPL is very liquid.
As for the ITM strangle: that trade is no different than buying the OTM strangle with the same strikes. You're paying for the real value of the options, which just offsets and does nothing for you.
It gives you no advantage, but probably costs you more in slippage because of the wide bid/ask spreads.
I disagree. The intrinsic value of a OTM strangle is $0.00. If they don't get any intrinsic value after and Earnings Report, then they are will lose value dramatically as IV implodes. On the other hand, an ITM long strangle has intrinsic value... It is a strangle, so you are expecting a big move in one direction or another. Initially, all of profits you make on one leg will offset the losses on the other leg, but if the move is big enough, the profitable side of the spread will increase in value as the non-profitable side goes OTM and/or the delta drops compared to the profitable leg as price moves away from the strike price
It's not a matter of 'agreeing' about an ITM strangle versus an OTM. Synthetically, they're the same trade. Mathematically they're the same.
Assume stock is at $100. Buying the 95 put, 105 call strangle for $1 is the same as buying the 95 call, 105 put (ITM) strangle for $11.
That's because the ITM strangle = the OTM strangle + the difference in the strikes. Another way of saying this is that by buying the ITM strangle, you're simply buying the OTM strangle and buying the $10 box. Both of these strangles have the same risk, reward, break even points, and greeks.
The only difference in real life is that you'll get better prices by trading the OTM options.
You keep saying that the risk/reward is the same, but losing $0.5 on a $1 investment is not the same as losing $0.5 on a $10 investment. The risk is substantially lower in an ITM strangle than an OTM strangle compared to initial investment, and the reward is substantially lower as well relative to initial investment as well.
The $10 is not at risk. The minimum value of the trade in this example is $10 regardless of what the stock does. So you're putting $10 into the trade, the $10 does nothing for you, and then you get the $10 back.
If the point is to simply raise the capital level of the trade so that the risk looks smaller, without adding any benefit to the trade, then there are plenty of things you can do. But there'd be no reason to do it.
If you invested the $11 in the OTM strangle instead of the ITM for $11, you will raise your risk substantially. Therefore, yes, raising capital to decrease risk is a benefit of the trade.
However, also, going ITM on a long strangle would lower your position's overall vega risk, so you can use an ITM strangle to cancel out a high IV if you are late to the party and want to still participate in an Earnings Report trade, biotech study results, etc.
The vega of an ITM call is the same as the OTM put with the same strike, and vice versa. There's no benefit to an ITM strangle.
As for trading an ITM strangle for the sole purpose of raising the capital requirement, that makes absolutely no sense. What you can do is add another ITM strangle, with options so deep ITM that they have a delta of 100, and that way you'll have a VERY expensive trade (that doesn't do anything) and your percentage at risk will drop dramatically.