Mav, I was just exactly wondering whether such spread would give some other opportunities in case of flat/losing one day trade. Also long side works well for indices, thanks. While there are no secrets for you, maybe you may recommend some news service ? These things were never my favorites but job is a job. LOL So far using CBS, Bloomberg, Yahoo, IB.
What do you mean by news service? You mean to get stock ideas? Seriously yahoo is great for all the earnings as is briefing. Other then that, you can always scan for high vol stocks and then go back and search the news and see if you can find why people are so afraid and if there is one particular event approaching that you might be able to capitalize on.
Chris, something else I forgot to mention. You should never do these with less then 2 weeks to expiration. You should use the next month for your front month in this case. With this MRVL example you picked options that were expiring in 3 days. That's a lot of theta to lose even just for one day. You always want to have at least 3 weeks on the front month position in which your long. Preferably 4 to 6 weeks. Sorry I didn't make that clear. You don't want your theta to wipe out all your profits. Hope this helps.
Riskreward, It really depends on your risk tolerance and how much size you're comfortable doing per spread. But as with all trading, the more capital, the better. It may be helpful to approach credits using certain guidelines, such as requiring a risk:reward ratio per spread of 2:1 or 1:1. Then just make sure you spread the capital allocated to this strategy over a sufficient number of positions to diversify your risk while keeping the portfolio manageable. Lastly, you should keep in mind that, while these positions typically have a probability of profit of 60%-70%, one losing trade if allowed to go to max loss can wipe out several hard-earned winning ones. Hence, it will be essential to develop and enforce a strict stop-loss regimen as part of your trading plan. HD
HD, as you know, I use dual bflies for trading Qs. While the market dipped right before expiration, my profit this month was only 1,5%. While I know you use similar technique but trading iron condors on XOE, may I ask how was your last month (nov) ? Obviously I do not ask for numbers but just for opinion. LOL
Chris, My November XEO IC -- 490/500/540/550 -- did well, with all options expiring worthless yesterday, and the trade ending up at max profit ($4.65/spread). In fact, it was one of my "easier" months as the deltas of the short calls and short puts remained safely below 40/-40 throughout the entire life of the trade. I'm curious. What were the specifics of the Nov butterflies you did, if you don't mind sharing? While I've not attempted it, it seems the QQQs may be a more difficult instrument on which to use such positions given their very high gamma. In fact, for that precise reason, I've been using straight directional positions on the QQQs (currently, long a bunch of Dec 34 puts) as part of a long gamma portfolio that I use to hedge my IC's. Regards, HD
HD, congratulations on your November performance. In Qs I had double bfly consisted of two 35/36 bflies: 1. 34/36/68 2. 33/35/37 I adjusted them twice through the life of option, so bfly #2 was free trade at last, but #1 was losing. This shows that your strategy has larger profit range, as you said before, however adjustments opportunities might be better with dual bfly. BTW I was just thinking of protecting my position by using straight directional as well i.e. buying additional 34 puts and 37 calls. While your are right about very high gamma of Qs, I am thinking of DIA as another possibility. Gamma is much lower, but this market must have strong correlation with S&P100, so may be not the best for you to hedge. Regards,
Chris, Yes, I agree that the diamonds wouldn't really work as a gamma hedge for my purposes given the high correlation to the OEX. But in addition to hedging with the QQQs, I've started using a basket of select long/short stock/leap positions. Of course with those, you have non-systemic risk and are subject to the vagaries of stock selection. We shall see how it works out. Regards, HD
HD, looks like XOE is better vehicle for range trading than Qs, but for me whole thing is how to defend your position. I know that you convert them, but do you find this strategy enough efficient ? And what happens if the market turns around after converting and going back ? The basket of horizontal spreads on stocks is nice idea but this takes some work, doesn`t ?
Chris, I'm working on a qqq trading strategy. I agree that the qqq's are not necessarily the best vehicle for flys or condors. I'm going to create a position that basically is going to involve short term trading around a qqq straddle. The basic core of the strategy will be look for support levels in the qqq and buy shares of the qqq's and sell the ATM straddle. This position will be aggressively traded and can be either long or short. The premium from the straddle will be used to offset any directional losses. The reason behind trying to buy support levels is because when the qqq's come in they will have a little more juice on the options and the rallies will take that juice back off. BTW, the sold straddle will obviously be a front month straddle. The position in the underlying will only be held for 2 to 3 days at a time. And a stop will always be placed on the underlying position.