Has anyone ever traded an in the money strangle?
Risk vs reward is huge.
For example, last week I bought a BHP MAY $27 Call / $37 Put for $10.39
(BHP was at $32)
The Intrinsic value of the spread will always be $10 so my risk is only 39c, with an uncapped profit.
The best part is your losing leg (i.e the put if market goes up, or call if it goes down) actually gains time value as it moves against you. So If BHP runs to $37 this week I have a call worth $10, and an ATM put with 3 weeks to go worth approximatley $2. The spread is now worth $12.
ROI is 15% (1.61/10.39)
Return on Risk is 412% (1.61/.39)
If BHP runs higher, even better as at that stage your deltas are 1 on the call, around -.5 on the put, and that difference will increase as the market continues to rise. Need to be careful though time will start eating away at the put
Best part is non-directional strategy, just a volatility play. Not caring if the market goes up, or down, just so long as it moves