Registered: Nov 2006
04-22-12 05:58 PM
Quote from falconview:
I´m enamored of strangles and straddles. I´ve heard from two people who are making money at it. So still seeking the TRADE SECRETS of how to do it.
Far as I can figure, there is the standard way and a second way. The standard way earns about 3% a month net. I´m not finished experimenting with the second way yet. I´m still trying to fix it with bells and whistle, tweeks and stuff. But figure it should return 10% a month. Much of the criticism coming in, apparently is because people are trading front month and second month options in a straddle or strangle. I´ve learned you need to trade 90 day straddles or strangles. I´ll at least pass that on to you. ( GRIN )
The big thing with this type of trade, is there is NO RISK. Very slow conservative, neutral strategy. Takes about two weeks to a month, depending on market movement via lady luck, to work your way of a strangle or straddle.
I´m in a big cash straddle right now, ( for my current account level ) to see how my theory works out in reality. Done some straddles before but the old fashioned way. They work but very slow.
I am also doing a lot of experimental paper trading on many other classical strategies. They do make money. But there is alway some RISK. That is the difference between anything else and the NO RISK straddle/strangle. Other strategies mostly to do with selling premium, have to consider risk and so they trade a smaller portion of their equity account. These make more money, faster, but carry risk. Because of the trade off, between RISK strategies seems to be a balance of trading smaller, it takes longer to increase the equity balance. I´m getting into my theory implications here right now, as empirically I am in the process of doing it and no hard results in hand.
Listening to reports on here, about results for annual RETURN ON INVESTMENT ( ROI ), I hear people claim anywhere from 30% to 300%. Larger returns carry more risk and often blow up, they certainly have drawdowns and losses. The MARKET WIZARD book claim a 40% return ROI for a year, is a top reward ratio to shoot for. One correspondent friend claims a 60% return per year, ROI.
The trade off for a straddle / strangle seems to be NO RISK, vs RISK, but higher reward by anything else. I´m a novice amateur so my thoughts are not necessarily correct here. Take WARNING!
My thinking, not yet backed up by real life, is that a straddle / strangle can return 30% to 100% per year on your equity balance. The trade off balancing act is that with a NO RISK strategy, you can trade ALL your account each time. What we call COMPOUNDING. Whereas those that are claiming 50% or so ROI, have to allow for RISK and trade smaller amounts of their accounts, to cover losses.
I´ll toss those speculative thoughts out for comments. This is at the moment only theoretical thinking and I´m just starting on the process of proving I´m right with REAL MONEY TRADING. The FUTURE KNOWS. I´d love to start with a $200,000 in a NO RISK STRATEGY, because you probably could live off it as income?
When you talk about "annual returns on capital" you will discover that it doesn't mean the same thing to any two traders. Why?
Because lets say "Trader A" starts with a very small account ($5,000) but every trade he executes he uses $2,000 per trade
(40% of his account), and lets say he's lucky enough to return a $5,000 profit by the end of the year. That's a 100% return on his account. Right?
Now lets say Trader B has a $20,000 account and he also uses
$2,000 per trade (10% of his account) and he also returns
$5,000 profit by the end of the year.
That's a 25% return on his account. Right?
You see, talking about annual returns is meaningless unless you have well defined and widely accepted and recognized parameters for "investment per trade with respect to account size." (Acceptable risk per trade based on account size that is widely accepted in the investment world).