I used to. But the problem is, it's hard to find premium high enough to cover the commmission of having to open four positions.
If I may ask, how much are you paying, there are brokers out there that will charge per contract as opposed to per trade. examples are interactive brokers-$2 per, so if you buy 1 fly that is a total of 4 contracts-$8 total.
Sure, I use IB. Every one does. Even with 8 bucks to enter, it's a cost to consider if you are doing an equity option (since index options are so heavily traded that the price you pay on the spread will be almost equal to the expected value of the positions). Equity positions don't necessarily have the liquidity, premium, or IV high enough (or at least, with spreads that won't kill whatever edge you were hoping for). GATrader, I'd love to hear about some of the past butterflies you've done. I'm anxious to know how you handle the problems I described from experience.
I have only done a couple, so I can't say that it would be something I'd do indiscriminately, I have done a lot of flies as a floor trader in futures options. That is the reason I am fishing around for info about stock options and valid option trading strategies. I am going to be trading equity options the next quarter to see if I like it compared to daytrading stocks with an LLC.( I left an LLC last week-was making money but not enough to justify being glued to the screen 6.5 hours per day.) I am trying to see if I can skip over the quarters (i.e. daytrading) to go for the dollars (option position swing trading). I can't swing trade using outrights coz am too risk averse for now. So We'll see where this road takes me. Regarding spread costs and giving up the edge in option due to liquidity, have you thought or tried gamma trading? Ex. HV of stock is 50%, IV of stock is 45% for whatever the reason. Buying the straddle and making delta adjustments every time stock moves up/down, so you are automatically buying low,selling high. Basic option theory suggest that if you guess correct in HV and you buy IV lower than HV, your adjustments should make more$ than your theta decay. This way, after putting on your straddle once- you are using underlying which has minimal slippage,spread. any thoughts?
GATrader, I once asked the IT people at my LLC to try to build a server system that would work out the adjustment needed in a Gamma neutral trade. They crunched the codes for a month or so, and told me it can't be done. For the most part, the adjustment are purely mathametical that has little value in real world trading environment where the market does not move continuously. One of my traders who was has a masters in math in a previous life told me the same thing. In my experience, this is true as well. The market, unfortunately, doesn't fit nicely into a CAPM. :-(
Maybe I mispoke or mistyped when I said gamma adjustments. Basically what I had in mind is to look for a straddle that is < hist vol. I would then buy 10 calls and sell 500 shares for a delta neutral position, stock moves up 1.5$ sell 100 shares to be delta neutral, stock moves down $1 buy it back, keep doing it for the life of the straddle. Hopefully, the models hold up. I don't know what you mean by having the IT people crunch some codes for you. What I am looking for is to utilize my tape and chart reading skills to time my adjustments, example if my straddle goes -200 shares delta and is nearing big support, maybe risk not adjusting coz stock might pierce through support, and I can adjust at better levels. I guess the trick is in buying the right IV level. I recently got a program -optionanalyzer pro from Essex trading which charts IV vs. HV, IV vs. its own IV so I can see how current IV compares to HV, how current IV compares to whre IV of stock is trading before. Enough rambling.. I will try the fly and straddle this quarter and maybe post the results. I am excited about this venture for there seems to be very few option traders out there-at least in these boards. Thanks for your insight.
anybody here know where to get the best information on gamma scalping. Tony Saliba mentioned on trading markets and I know he has a $200 course on it but I thought I should try and collect some information on it a a lower cost. I put on a postion to gamma scalp AOL once but all felt like all I was really doing was just stock scalping which is what I do all the time thanks
options perception and deception by Charles Cottle has an excellent few pages on scalping gamma with the spot and with vertical spreads.
To Jem: The only subject I heard about gamma scalping is the the in house training my company sent me 10 years ago with Sheldon Natenburg: I think it set my co back about $800 for 2 days. Basically, the gist is to buy IV below HV and if the HV estimates come into fruition then you should make $. The real art is in making the adjustments. When the deltas get out unbalanced, do you adjust right away? adjust by time-i.e. every afternoon, by # of shares? every 200 deltas short/long,etc. I will try it for a while and post my results.