A Study of Covered Strangle in a Rather Neutral Market Message Board

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Strategies & Market Trends : A Study of Covered Strangle in a Rather Neutral Market

QCOM 168.90

0.0%

Oct 4 9:30 AM EDT

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To: PAL who started this subject	8/17/2001 7:49:50 PM
From: PAL	Read Replies (2) of 23

The question is why am I interested in a covered strangle in a rather neutral market? Well, let us look what a strangle is from the of a buyer: a buyer of a strangle is one who buys simultaeously call and put on stock with the same expiry but with different strike price. for example: buys 1 call of qcom oct 70 and buys 1 put of qcom oct 60. he/she pays 2 premiums, i.e. the call premium ($ 3) and the put premium ($ 6), for a total of $ 9. he/she does not care where qcom will be, especially at expiry as long as it is above 79 (70+9) or below 51 (60-9) to make profit where he will make money. In a volatile market he has the advantage since the stock can have wide trading range. But in a rather neutral market, the range is rather limited. Would you be a buyer for the strangle above? Therefore, if the climate is not fertile for a strangle buyer, under zero sum game, the strategy of selling a strangle could be profitable. This is what I am studying, and under what conditions that I am comfortable with that. When the climate of the market changes, then a strategy which is good at one time might not be lucrative and should not be applied.

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