Long Synthetic Straddles

Discussion in 'Options' started by Broco123, Oct 16, 2005.

  1. Broco123


    I had seen this strategy being promoted by the Optionetics people a few years back. They made the comment that the more size you had on, the more adjustments you could make to the trade and thus the more "profits" that could be harvested. For example if I bought 100 ATM calls and shorted roughly 5000 shares, and made adjustments every .10 up or down I would be better off than the 1 x 2 trader who would just wait for the market to move one way or the other hopefully and take it off. My question is that isn't it all relative? I haven't done any of these trades, but I am curious to know if this is just seminar hype or if people are really doing these and making trading profits on a consistent basis. Thanks
  2. Choad


    There may be some truth to what they say, but this is similar to kind of a "one-sided" straddle or gamma scalping method.

    To survive the huge theta losses, you are going to need lots of movement - either big moves down or up, or lots of little moves to try and scalp dimes.

    What will happen is like every other trade, that is, sometimes you will get the movement and do nicely, and sometimes you will get beat by the commission, spreads and theta.

    I suggest you actually try it, but of course with much smaller size. I have done things like this with the biotech stocks like CHIR, but I typically lose interest after a few weeks and end up around B/E.

    But one of these days if I can just get that 40% move...!
  3. If one bought the calls when IV was low and then closed the position when IV was high after having kept the position as delta neutral as possible, a profit would be possible, if not probable.
  4. Has anybody out there ever tried rebate trading while long gamma?

    I think the key to long option trading is to trade the underlying with a strategy that is successful in congested markets.
  5. There is no difference between the natural and synthetic w.r.t. gamma-trading. None. Any hedge point will equate to identical PnL. It's akin to stating a synthetic short put[covered call] has some inherent advantage over the natural.
  6. Exactly.

    In other words the actual vol needs to be higher than the implied vol that you purchased.


    If you were gamma scalping a long straddle, what delta adjustment limits would you use. And why ?

  7. I've ran fixed-delta stops and daily/weekly deviations -- I prefer to run the hedge at 1/2/3 devs of daily or weekly[back months] implied vol. If using fixed-delta I hedge weakly at 10d, something less that the model-delta.

    Using sigmas allows me to ignore how cheap/expensive my gamma are trading. If gammas are pricey, it should be reflected in a loose-hedge based upon implied distro.

    Obviously, I tend to steer-clear of vols trading withing 30% of their 52w highs, unless there is a significant micro event.
  8. Surely hedging at a pre-determined sigma event is exactly the same as using a delta limit ?

    Can't make sense of that. Any chance you could clarify ?

    Thanks again.
  9. Quote from Profitaker:

    Surely hedging at a pre-determined sigma event is exactly the same as using a delta limit ?

    Didn't mean to imply different. It's simply a matter of preference. I prefer to have a daily bracket notation in lieu of listening for a delta-alarm.

    Can't make sense of that. Any chance you could clarify ?

    Simply that I favor an implied distro/statvol distro. No need to follow fixed delta/gamma, as the implied distro contraction/expansion infers cheap/expensive gamma. Again, it's simply a matter of preference. You can certainly solve for hedges using model-greek output.
  10. Cheers.
    #10     Oct 21, 2005