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Portsmouth, NH
Posts: 25 since Jul 2013
Thanks Given: 0
Thanks Received: 10
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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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