Mohacsy's Safe Portfolio Member Forum

[santafe2]

Thanks for the confidence Nick but I've not traded straddles, options that assume volatility. I sell call options in lieu of selling the underlying equity. That is, someone pays me a small percentage of the long option strike price for the right to buy my shares at that strike price at some point in the future. This strategy works best when the market is predictable. That's the reason I've stopped executing those trades over the last few months.

Straddles are interesting in a volatile market like this one because there is limited downside to the counter position. That is, it can only go to zero while the option placed in the direction the market moves has no upside limit. That said, the options for an equity where volatility is expected will be more costly than one where it is not.

I would highly recommend executing a hundred paper trades and analyzing why they worked or did not work.

One last point, at the money options are rarely cost neutral. That is, the market will have a directional expectation so either the put or the call will be more expensive. In the case of CSX the premium is on the put.