well I have been trading options for a year now for meager gains, I havent tried anything to complex yet, however I came across this strategy in a newsletter (Naked Strangles On Weekly SPX Options), I've back tested 3 years back and it seems to easy. Does anyone on here have any experience doing this? If so how does/did it work for you?
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This only happens when you do not know your break evens on each side and when you not understand what vega is. Other wise you not will be hit in a bad way. (Just to comment on the smilies)
You write about naked strangles. If now with SPX options or from other markets doe's not make to much different. But what makes the different is if you now mean short or long strangles.
If short: Sideway market with low vola, risk uncapped.
If long: Neutral markets with high vola, risk capped
Both ways are usually traded with otm options. There are different ways to implement such strategies, but as you are a beginner, stay with what is shown in the books and free learn videos.
I do not know, what software you used to back test it, but you should have recognized the break even points on each side. Be sure, that you know how to adjust on those levels in case the market moves to much to one side.
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A Naked Strangle is selling/writing both an OTM put & OTM call. I want to write them 2-3 days before expiration on the SPX weekly hoping to have the index be confined to a tight range and the options sold expire worthless so I can pocket the premium. That is the strategy in more detail.
An other way to trade short strangles with lesser risk as planed by you is to do it with otm options far out of the month. You can do that on any future. You keep them for two months and then you buy them back before they represent the current month. In that way you reduce the risk, that they may suddenly go in to the money in the last few days before expiring and then it will be expensive to buy them back.
I dont think this will be rewarding as one sharp correction or rally will wipe off ur seasons earnings, if you are expecting the markets to be range bound better do a short straddle as they are high Theta items and will decay pretty fast in the last week.
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