I´m enjoying the feedback, and hoping you will point out the faults in this.
A straddle, or strangle needs to be implemented at a time of consolidation. I do that. This means volatility is at a low. If you do otherwise, then of course there would become volatility shrinkage as part of the risk. I was not thinking of entering any other than consolidation times. I somehow didn´t think it was necessary to point that out. But see now, I didn´t explain myself clearly.
As to time decay. That is one reason you go to 90 day options to give you the time. So far in my limited experience, it has not effected the spread at all. You are waiting for directional price movement and a volatility spike from faster action. A small trend so to speak. There is a trend every week. I trade them directly when the VIX is higher.
Again, from only limited experience, it seems a straddle or strangle profits in 2 to 3 weeks. Not the 90 days you have taken the options out for. The only question so far, in my mind, is how to boost the returns.
falconview...u explained yourself perfectly crystal clear. I didnt mention consolidation factor because u didn't.
Here is a perfect example where your perceived setup fails:
On 3/20 QQQ closed at 67.11. Perfect consolidated pattern. The June 67 straddle with 87 days remaining to expiration cost $ 4.70. The VIX was at 15.58... some of the lowest volatility we've had in long while.
On 4/20 the position could be liquidated for 4.30... almost a 9% loss. The VIX is at 17.44. If volatility didnt rise the position would be in double digit % loss.
In an approximate 2 week time frame- on 4/4 the position was at 4.22...over a 10% loss. VIX at 16.44.
At 3 weeks on 4/10- 4.45 with VIX at 20.39... a big jump in vol. Still down almost 6%.
falconview...u explained yourself perfectly crystal clear. I didnt mention consolidation factor because u didn't.
Here is a perfect example where your perceived setup fails:
On 3/20 QQQ closed at 67.11. Perfect consolidated pattern. The June 67 straddle with 87 days remaining to expiration cost $ 4.70. The VIX was at 15.58... some of the lowest volatility we've had in long while.
On 4/20 the position could be liquidated for 4.30... almost a 9% loss. The VIX is at 17.44. If volatility didnt rise the position would be in double digit % loss.
In an approximate 2 week time frame- on 4/4 the position was at 4.22...over a 10% loss. VIX at 16.44.
At 3 weeks on 4/10- 4.45 with VIX at 20.39... a big jump in vol. Still down almost 6%.
There is your risk in a real world scenario.
In contrast... on 4/19 you couldve bought the front weekly 67 straddle for .62.... in about 4 hrs the position was worth 1.41. Trust me... not without its risks by any means... however this strategy definitely gives you an opportunity to take advantage of a move...while risking a low amount in the form of a slow price decay risk of a 1R.... with the very feasible reward potential of 4-6R and more.
The only question so far, in my mind, is how to boost the returns.
Stop pondering... there is NOTHING you can do to boost the returns with the strategy you are describing.
I have already described how to exponentially boost your returns-- you need to remove the majority of the premium from the spread...the ONLY way to do this is by reducing your timeframe.
I saw on another post where u said u cannot trade intraday... why is this?
Regardless of what the reason is-- my suggestion is u do everything within your power to figure out how to overcome this obstacle. If it has something to do with PDT...then limit yourself to 3 trades or less a week... all it takes is one trade to easily get a return 10x higher in one day that the type of return you are salivating over being generated over an annual basis.
The point about time decay, or theta, apparently the writer is ignoring that the purpose of a spread is to negate theta effects. For how long that spread would hold off theta I don´t know in a 3 month options? Be interesting to find out.
So far, you have not put forth any concrete evidence that the assumptions are wrong? I do appreciate the effort though. If there are factual weaknesses I want to know them. I currently have a third of my small account invested in a long straddle. CASH MONEY.
I am also curious, what makes grown men, play with this forum on a Sunday. ( grin ) I´m very old, whats your excuse?
1/3 ?
In a straddle? If it was an extremely low prob credit spread with small profit, yeah I can understand...
but putting 1/3 of your account in it means you expect the underlying to explode meaning your vol has to be BANG ON...
Noone here can forecast vol that well and to put things into perspective, you don't even have an elementary grasp on the greeks.
Riff raff
Well indeed! That is food for thought.
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Hey babu how u doing mon? Wrong forum no?
Okay Riff Raff, you certainly produced some interesting stuff.
Have no idea how you could get those premiums and dates together like that. How did you do it?
The March 20, 4.70, then April 4, 4.30, then April 10 4.45 was very interesting. Not knowing how you could acquire that info. I can only applaud.
I kind of know the spread will gyrate. As the market goes up and down in small gyrations. I´m aware if one waits long enough to get a directional monthly move in one direction including the gyrations, it will evenually profit. At least from my limited experience. When many months ago I tried overlapping straddles, I noticed that. But that didn´t change the fact that eventually the market would start gyrating in a longer direction, making the monthly bar. In the months I tried that, it always eventually gave me a profit. The time waiting was the only variable really.
It is your next post about reducing the TIME FRAME, to remove premium and a jump in the spread of a weekly that I found more interesting. As you said, THETA would be a big effect in a weekly trade. So what conditions set up for you to get that jump in volatility would be interesting to know? That sure sounded like a risky trade? Probably an hourly trend for four hours? You can predict those, so it raises interesting possibilities if one knew the specific conditions necessary to take the gamble. I think I´ll look for that in the weeklies and paper trade some ideas to see what happens. Unless you can offer the specifics?
The intra-day business is because my account is too small. I´m allowed about one, perhaps at a pinch two day trades in a five day period.
There must be a specific unique situation to be able to put a straddle on, in a day trade during a high THETA environment ? What was the specific situation? Curious minds would like to know.
Babu your commentary is scary. But so far, I´ve never lost on a straddle. So while your comment is scary, have to stick it out for now. I´m working on diddling with the straddle to get some oomph out of it. Have to try this in the real money world. So will go through with it.
Riff raff
Well indeed! That is food for thought.
_____________________
Hey babu how u doing mon? Wrong forum no?
Okay Riff Raff, you certainly produced some interesting stuff.
Have no idea how you could get those premiums and dates together like that. How did you do it?
The March 20, 4.70, then April 4, 4.30, then April 10 4.45 was very interesting. Not knowing how you could acquire that info. I can only applaud.
I kind of know the spread will gyrate. As the market goes up and down in small gyrations. I´m aware if one waits long enough to get a directional monthly move in one direction including the gyrations, it will evenually profit. At least from my limited experience. When many months ago I tried overlapping straddles, I noticed that. But that didn´t change the fact that eventually the market would start gyrating in a longer direction, making the monthly bar. In the months I tried that, it always eventually gave me a profit. The time waiting was the only variable really.
It is your next post about reducing the TIME FRAME, to remove premium and a jump in the spread of a weekly that I found more interesting. As you said, THETA would be a big effect in a weekly trade. So what conditions set up for you to get that jump in volatility would be interesting to know? That sure sounded like a risky trade? Probably an hourly trend for four hours? You can predict those, so it raises interesting possibilities if one knew the specific conditions necessary to take the gamble. I think I´ll look for that in the weeklies and paper trade some ideas to see what happens. Unless you can offer the specifics?
The intra-day business is because my account is too small. I´m allowed about one, perhaps at a pinch two day trades in a five day period.
There must be a specific unique situation to be able to put a straddle on, in a day trade during a high THETA environment ? What was the specific situation? Curious minds would like to know.
Babu your commentary is scary. But so far, I´ve never lost on a straddle. So while your comment is scary, have to stick it out for now. I´m working on diddling with the straddle to get some oomph out of it. Have to try this in the real money world. So will go through with it.
TOS platform--- thinkBack feature. In minutes u can analyze it. On Demand replay will let u replay tic by tic too.
