My "Better Straddle" trades.

Discussion in 'Journals' started by JJacksET4, May 2, 2013.

  1. Hi all,

    I have opened a Virtual Trade account and set the opening balance to $100,000. I plan to do an options trade that I call a Better Straddle that brings in some money as well as the money that you spend. In a large move, this can bring a higher % return then a normal straddle, but can keep your losses reasonable in a non-mover.

    I am doing trades with a fairly large amount of time until I have to close them as I feel most stocks will make good moves given time, however we don't know what that time may be. Also, I have the option to hold over another earnings, however I often open these after the IV drop from a recent earnings.

    I have attached a picture of the virtual trade account for now. I have opened 7 positions (I only show 1) and I wanted to note one thing - the account is currently only at $97000, showing a $3000 loss already. This is basically due to bid/ask spread but there is another thing - I really didn't do these trades correctly as I just put them in as market orders.

    In real life, I have never done an option trade and maybe never a stock trade as a market trade. I think the fact that I put them in as market orders made the costs higher then they would have been otherwise. For example if a straddle is priced at 9.5/10.00, and you do a market order, not only will it not likely bring a good price, but it might go through on a blip to 10.20 for example. With limit I could have at least said limit 10.00 and left it at that. Another big factor is that longer term options CAN have decent bid/ask spreads and these are all longer term options. Also there are 6 legs, so any slippage does add up. Overtime these items will hopefully work themselves out with stock movement. I just wanted to point out though that I do plan to use limit orders in the future for this journal.

    I will plan to update this account every week or 2 or when something large happens.

    Thanks for viewing.

  2. Update after 1 week.

    The account hadn't done much of anything by Wed., but the last few days were better. The VIX went up a bit and today MCP jumped in price.

    I wanted to explain a bit more about my positions. I started with doing these trades on 4 "high-flyer" type stocks and 3 stocks that had been beaten down (MCP was of course one of those).

    This is a virtual account but I may or may not do any of the same trades in my real account, using the same or different numbers of lots.

    I have attached a picture of the MCP position now that it has gone up to 7.34, and showing the account now at $98,637.

    For MCP, here is how the position stacks up.
    Straddle Profit = $1640
    Long Iron Condor Loss = -440
    Current Profit = $1200.

    Obviously, the position would seem be doing better just as a straddle - however, the cost to open was $5300, the Condor brought in $1480, making the "better straddle" cost only $3820. They are actually both returning about 30% at this point.

    Where this will really shine is in either a very large move where the profits will be almost the same as a regular straddle, and in the case where the stock is near the straddle strike prices nearing the first expiration.

    Another thing to note is that I do have to pay attention to the possibility of early exercise for example on the MCP 5 Calls I am now short for Sept., but the risk becomes worse as more time passes and/or the stock continues up, the later case especially being better for the overall profit anyway.

  3. Here is a quick update. Account is continuing to do better, now at $99484, and it had been over $100K today when the market was near the day highs.

    I never posted any specific sell rules - after MCP jumped, I didn't close it and it fell back. I decided to keep it anyway partly because there is still a large amount of time in the position. Also, the profits were good, but not huge and this is the type of strategy where it makes sense to accept small losses sometimes if you can make large gains other times.

    In my real account when I get a profit at any point I might close, I might adjust, I might buy calls or something, but I view the paper-trade account as more of a tool to see how well this type of trade does, not as a test of my ability to make good adjustments. So, in this paper-trade account I will just open "better" straddles and close them with no adjustments. I will try to close when there are obvious large profits that could be at risk and/or the time is running short.

    I have attached a picture of the balance and the Visa position shown in the first post on this thread.
  4. A quick update. The account is now at $99,654. Several stocks have now had gains from the straddles just due to the general increase in volatility. You can see that in the image I attached with the stock V. Both the long calls and puts are up in value with V near the strike prices of the options.

    I haven't closed any positions yet or opened any new ones, but I hope do so within a few more weeks at least.