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How to make money on Volatility before earnings?


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  #31 (permalink)
 
Bermudan Option's Avatar
 Bermudan Option 
Chicago, Illinois
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Ok, we clearly aren't budging on our positions. I really can't comprehend how decreasing risk relative to investment size is not a good thing. Why do you think so many people invest in risk-free treasuries. There are risk averse traders who can participate in a non directional trade without potentially losing their head

I think I will finish my involvement in this discussion with the rational and reasoning behind ITM strangles as written in ' Options as a Strategic Investment' by Larry McMillan




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  #32 (permalink)
Greg Loehr
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Right! The question is really amount the amount of money at risk. Putting $10 into a trade, knowing that you can't lose the $10, and that the $10 isn't going to make you any money either, doesn't make it a better trade. It just makes it a more expensive trade.

So take your maximum dollar risk (not cost) from the ITM strangle, and put that same amount of risk into the OTM strangle. Take the $10 you're NOT putting into the ITM strangle and either stuff it in a mattress, buy a bond, or put it into other trades. Either way, the trades risk the same in theory, but in the real world the OTM strangle is much more likely to give you better entry and exit prices.

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Last Updated on July 28, 2013


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