How is this for getting too fancy. Being that you already own the ATM straddle and will get rid of it by day's end, BUt stock goes away from it early but not a lot which means ur sitting on a little profit, but it is still early in the day, would you sell something in the back months-a vertical perhaps to move your delta back to flat?
I don't think that back month vertical will help you since you are closing it out that day. Even if you get close to the mid price you are still paying for bid ask on two options. Plus that vertical will have a lot less gamma than your straddle since it is in the back month. What I have found is that the easiest thing to do is start pulling your calls/puts off to get back to delta neutral taking in profits as you go (or just take the whole thing off once you get to your expected move). I traded this on AAPL last year. I found once it hit a strike it would actually decouple instead of pinning like a lot of people thought it would. I think a big part of it is that everyone is so enamored with selling weeklies you get a slight edge buying (sometimes).
I think ur right on that one, once a move happens I guess you can start selling front month verticals and turn it into a wider and wider long strangle so ur booking pnl and owning a strangle which expires in 2-4 hours that are 2 sigmas out. Ex. XYZ at 50, own $50 straddle, XYZ goes to 53, sell 50c(book pnl) buy 55c. You now own 55c/50p strangle.
I still have to test whether there is something about selling the back month verticals precisely for the reason that u mentioned-lower gamma. I wonder if you can put on these ATM straddles on the front month and take them on.off for the next 5 days -paying a little theta each day (avoiding the overnight decay) and use the front month ATM straddles as a way to sell back month verticals really expensive. Kinda like gamma scalping.Prob too much commission to be worth it.
If you're system has you with firm conviction in a particular direction, there is no reason whatsoever to do a straddle. If volatility is low-- buy calls. When IV is high-- sell puts. Based on a 2-3 day timeframe and want some wiggle room-- look to a new weekly series (every Thurs)... If u feel strongly thr move is imminent at present-- do the front weekly. I
Prefer deep ITM-- but if your willing to take the risk and u get your move-- the returns can be phenomenal on ATM/OTM.
I have seen a lot of traders that are very successful just trading verticals. If you have a bias of where it is going then buy an option 1 strike in the money and sell an option 1 strike out of the money. If the conviction is strong, buy an otm vertical (provided the short option makes a difference). If you have a bias of where you think it won't go, sell an otm credit spread. Verticals have a way of reducing the risk of other greeks so you can focus on the delta which is what you want in a pure directional play.
I have seen a lot of traders that are very successful just trading verticals. If you have a bias of where it is going then buy an option 1 strike in the money and sell an option 1 strike out of the money. If the conviction is strong, buy an otm vertical (provided the short option makes a difference). If you have a bias of where you think it won't go, sell an otm credit spread. Verticals have a way of reducing the risk of other greeks so you can focus on the delta which is what you want in a pure directional play.
Can u elaborate on. Provided short option makes a difference. Thnak you
