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BHP $33.57

short strangle ... where to from here??

  1. rembrandt

    5,816 Posts.

    Hmmm... an update and chart.

    6:46 PM 9/01/2003
    Subject re: advice from options traders ... duck
    Posted 06/01/03 15:01 - 475 reads
    Posted by rembrandt
    Post #62625 - in reply to msg. #62568

    Hi Duck ... I would consider a SHORT STRANGLE as one near term option ...

    Reason: IMHO it is likely BHP will range over the near term between resistence at $10.20 and support at $9.50.

    For those with a Margin facility ...

    Sell $10.44 Mar03 Calls (BHPTO) at around $0.35.

    Watch this pozzie and if BHP continues to weaken towards $9.50 on this news then complete the Short Strangle by:

    Sell $9.49 Mar03 Puts (BHPLA) which would then be around $0.30.

    This is a roughie as I have not crunched the exact numbers but you get the general idea ... the twist is not opening the second leg necessarily

    at the same time as the first...

    If BHP should bolt in either direction then CLOSE out the dead leg.

    This is not a recommendation for a trade but a general view of one possible Option strategy.

    Others may be more definitive on this than I or have other workable strategies ...

    Cheers ...

    The above was opened 060103 with Sold BHPTO Calls.

    Also as above, the opening of the second leg was delayed ... the plan was to do this as BHP hit support at $9.50 but kept on weakening with likely more to come ...

    Sooo ... where to from here given we are pro-actively managing our position and keen to maximise our profits.

    Chart shows original strategy and current position ...

    We see our SHORT ENTRY and BHP moving nicely in our favour.

    Our Sold BHPTO Calls have a realisable profit yield of 70% of premium income ... (a bird in the hand etc ...)

    Whilst BHP looks oversold there is no clear evidence of an upward trend. War would see a hike in Oil price but a rising AUD is a negative for the resource biz. There is also concern as to just what Don Argus has in mind ... Chip is solid but untested at this level.

    Decision: Close to take Profits and reconfigure our Strangle as a Bull Spread.

    Sell near term Puts and Buy far term Calls ... again, delay opening the second leg until strength evident.

    This initial opening strategy will max profits should BHP price plateau and/or weaken.

    If BHP bolts for whatever reason ... close out the dead leg ... tight stops.

    Cheers ...

    This is only my view ... read the red stuff.

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