I´m trying end of day, to run some different classical trades to learn them. Got bogged down with long straddle. Who would figure that, when I traded them successfully last week. Anyway got 3 long straddles on, PFE in July, CSCO in July and then QQQ in the April weekly. I am not sure what I was thinking of when doing that last one? Now the results are mixing me up. I believe the straddle has to be sold for more than you paid for it, in total? But my numbers at the close are less. Probably because of the April weekly and time decay. I have no idea why I did that experiment? Time to quit for the day and come back in the middle of the night and think about this again and finish off these different spread experiments.
Jeff U said something about your investing formula being adapted to changing the VIX inputs, so you got smaller increment trades, as the VIX changes. That bothered my simple little mind and not having the vocubulary to express this in GREEKS, I decided to let my subconscious work on it while I slept. Just woke up and checking up some other experimental trading strategy trading trials. I´d like to point out, you seem to be speculating in first month options without much time to allow for time decay. As the VIX drops, the ATR gets shorter. As the ATR gets shorter, your time decay escalating increases, as days pass in first month options. You get to the point where the time decay in a bull trend, as marked by a dropping VIX, is increasingly GREATER than the possible recovery from the shortening ATR. You find that you can get the index movements, but you do not get the corresponding improvement of premium prices. The indexes can go up, but your premiums continue to go down. The part of the equation that is FIXED, is your bid ask spread and the commissions. In this situation, the costs become greater than the ability of price movement in your directional long options to gain on. I was not able to express this in the greeks. But if you play with this thought, you will see that adjusting your VIX number in your betting formula equation, will not overcome the loss to your fixed costs, plus your shortening ATR. I know this for fact and experience in my gut, but would not be able to express this adequately in the accepted GREEKS. Needless to say, the diminishing returns, guarantee you will lose each time. Not be able to adjust your VIX to bet in smaller increments on each passing day.
As an aside, during the past 10 days or so. I had two long option bets that did not pan out. I kept them and decided to use them as a very, very, wide strangle. These were in cash, and so cutting losses short would have put me below my, self imposed parameters to continue trading. MANY LURKERS ON HERE, have often told me to morph a losing trade into something else. Not actually having knowledge of other spreads, I had in the past prefered the simple choice of closing losing trades. Sort of what JEFF is doing. I had explained earlier that I traded the resulting strangle in the Delta Neutral, gamma scalping method. The end result pleased me, as I was $15 short of my break even. But I did gain back, or keep $270 of my previous book losses, which put my equity balance back slightly above my lower equity balance parameter. So I am still in the game, though taking a breather while this novice paper trades different spread strategies. See if I can get a feel for them. The goal, to see what combinations one can make, to adjust particularly losing, or possibly losing trades into something else. I´D LIKE TO THANK THE LURKERS THAT HARPED ON THIS. Like Jeff I was fixated on making LONG OPTION TIMING TRADES WORK. Reluctant to do anything else with my CASH. Which obviously in hind sight turned out wrong. Now you have me trying to combine different types of trades, so I don´t take a loss. One thing for sure, tennis balls will bounce and so will the market. With a bit of LUCK and CHANCE, my foray into combined adjustments was satisfactory and encourages me to grow with some other spreads as well. THANKYOU FOR CONTRIBUTING TO MY EDUCATION. ____________________________ In the meantime, a LONG CALENDAR in XOM is working fine. Gaining .55 cents right now, but with approximately .40 cents in fixed costs to be subtracted, nothing to brag about yet. I have a CONDOR in QQQ which is disappointingly only 1 cent to the good so far for the weekly, on this Wednesday close. Several other weekly trades, will close on Friday, all on paper. _________________________________ Its early in the wee hours of Thursday morning and am now going to read up on Victory Spreads and Reverse Iron Condors, as better substitutes for the Long Straddle. I rather like the neutral aspects of the Long Straddle. Seductive and simple. One lady fund trader on here, commented she trades Straddles a lot. Trying to back engineer this and find out what she is doing to make it work. Another guy some 30 years ago, used to trade $50,000 strangles and made enough to start his own bank in Miami. So there must be a way to make them work regularly?
Closed my ebay fly for a decent profit despite the stock flying through bouth the wings... Closed the short calls immediately on open, let the longs rally and managed to close for a profit. QCOM, same story, let the stock rally back a little back after closing the short strikes and closed it for a profit. Quite a few earnings names yesterday hurt straddle sellers.
Babu Just reading up on butteflies. Interesting to note your closing the body first, waiting for a reaction to close the wings. I´m starting to understand the lingo anyway. Progress however small. Good on the profit.
The highest gamma position on a straddle is when pinned to the strike, but it generates little delta within one deviation. So you're best to trade iron flies // natural flies (like Babu's) if you're intent on legging out. (Makes sense, as theta is highest ATM). FWIW, I trade more natural (call or put) flies as I can trade them on a single order line in a ssheet or TWS.
Hello Atticus. Are you talking about using a fly around earnings? I've never traded a fly so I wonder if you have an example. I tried to short an Apr 2 70C/72.5C/65P/62.5P iron condor on qcom yesterday but couldn't get filled at the mark. From 2:00 on, I kept dropping the price as the nat was at .68. Dropped it to .69 and no fill and the nat even moved to .69 a time or two. Maybe a good thing as my short put was 65 and the price dropped and now back up to above 64 with 2 days to go. Thanks.
In general. I rarely trade flies into reports unless it's LEAPS and I expect the entire curve to flatten a bit. Irons will always fill tighter than the natural, but I am willing to pay a penny or two more for the convenience of trading the natural as a single order.