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Just Shoot Me

Bala, 28, Gordon Gekko in the making, pseudo-intellectual, cynic, bibliophile, obsessive compulsive ranter...

Thozhil Ragasiyam - 1

April 07, 2006

(If this makes sense to you, you will become rich)

Q: How does one make money while minimizing risk?

A : Use this strategy. Use it at the beginning of the contract period, while the option premiums are the highest. There are two scenarios possible :
i) A breakout happens in any one direction. Use futures to hedge, when the underlying price breaks out of the strangle range. Future position brings in the money, while the options balance out each other. Close the posiiton when the option positions stop balancing each other.
ii) No breakout happens. Some time near the contract expiry period (or much sooner). The premiums start decreasing exponentially. Cover your option shorts.
posted by Bala, 5:43 PM


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