Options question

This is a discussion on Options question within the General Trading Chat forums, part of the T2W Archive category; I have a fairly rudimentary knowledge of options and no experience of trading them. I had an idea today, somebody ...

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Old May 27, 2009, 6:44pm   #1
Joined Jun 2008
Options question

I have a fairly rudimentary knowledge of options and no experience of trading them. I had an idea today, somebody please tell me if this a valid strategy in any way shape or form:

Basically, the idea is that the current price of instrument X is at an historic s/r level which prices either previously bounced off of or went through and set new highs/lows.

At that point, one purchases both calls and puts at the current price (again I can't really conceptualise how much this outlay would be - the main sticking point) in equal quantities.

These are dated yy/yy/yyyy.

My thoughts would be that if price stays close to the initial price then I lose the total amount of the options price. If price moves either way before date yy/yy/yyyy, a profitable position arises. (Obviously the initial purchase price must be discounted).

I already have my own speculative strategies but I'd like to expand and options appeal.
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Old May 27, 2009, 7:14pm   #2
 
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Google straddles and strangles....
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Old May 27, 2009, 7:16pm   #3
 
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(But as a general rule, don't trade options unless you both understand the greeks and have a view on them)
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Old May 27, 2009, 7:16pm   #4
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Quote:
Originally Posted by arabianights View Post
Google straddles and strangles....
Thanks, I thought that there was a term for it.
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Old May 27, 2009, 7:18pm   #5
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Originally Posted by arabianights View Post
(But as a general rule, don't trade options unless you both understand the greeks and have a view on them)
I understand them fine.. have a view on them, not so sure. I'll have to get the books out.
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Old May 27, 2009, 8:34pm   #6
 
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Yup...you are talking about being long a straddle (if the strikes are the same) or a strangle if not. Strangle will be cheaper compared to a straddle. Note that you are long volatility as well. So, if vol keeps dropping as it has been you might lose simply based on that factor alone. As for knowing the greeks, it's one of those lifelong journeys. Why dont you paper trade it. I hear you can do that at OptionsMonster w/o funding an account.

Good luck!
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Old May 27, 2009, 10:11pm   #7
Joined Apr 2009
check this if you want to know your greek

http://www.trade2win.com/boards/gene...s-pricing.html
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