I want to ask if any of you have ever traded the following strategy and, if so, what were the ups and downs:
- Buying an OTM strangle (for example, SPY 500p and 550c) with expiry after a relevant event (let’s say FOMC) when IV levels are low and progressively capture the growth of IV as the event approaches
AND
- selling short strangles week after week closer to ITM (for example, 510p and 540c) to collect premium in the meantime and monitorice risks
Besides high margin, which I can cover with my ETFs broad portfolio, which are the downsides of this trade?
Long DTE strangle and short DTE short strangle
byu/Comfortable-Entry341 inoptions
Posted by Comfortable-Entry341
3 Comments
Double diagonals are always fun. One risk is that SPY doesn’t move and you can’t get enough premium selling the short legs to offset the losses on the long legs.
This trade is called a double diagonal.
But don’t expect SPY to conveniently stay within the tight range of your short strikes. Once it moves out of that range, the whole trade changes.
Do you think you’re the only person with a calendar and the ability to work out when FOMC dates are?