The SHORT STRADDLE CREDIT SPREAD. I´m becoming enamored of my experiments with the SHORT STRADDLE CREDIT SPREAD. On a risk to reward ratio it seems much better choice than the Vertical Credit Spread most people use. I think of it in my learning experimental trials as a bouncing tennis ball. Trading Journal introduced me to this concept. You pick the middle of the expected market action whether Monthly or Weekly bar, and SELL the short STRADDLE CREDIT SPREAD in the middle of the action. Each time the market gyrates up and down, passing through the index value you placed it, you have the choice of closing it out at MAXIMUM PROFIT in collected TIME DECAY. The more bounces the more it earns. The more days pass the more profit collected. You can close it any time, it passes through the initial SELLING index value. On a risk reward relationship. My 50 contracts in Vertical trading costs me $25,000 in margin. If I lose, I lose it all, pretty much in the weeklies. In the short straddle credit spread, the loss is unlimited. But monthly bars run in the OEX between 30 and 40 pts. and the weeklies usually run 10, 15, or 20 points in the OEX. I´ve found if I can sit through two bounces in the weeklies I make as much as a Vertical Credit spread costing $25,000 in margin for 50 contracts and in the SHORT STRADDLE I am only using one contract. I will, should the experimental trials continue well, increase to two contracts and maybe 3 contracts. Don´t know what the margin is yet on this as Im still trading on scratch paper with this as a learning excercise. When I move to the TOS account will learn the margin requirement. At any rate the bouncing tennis ball analogy works well for me and the idea of doing this in a monthly beats all heck out of doing Vertical Credit Spreads, I think for RISK/REWARD ratios.
Falconview, if this was real cash, I would sell it now. However, this is a learning experience to see what happens as the month progresses. Already learned how to do an adjustment far before any chance of going ITM, which is comforting, to avoid the losses you are talking about. This would be a concern for me "In the short straddle credit spread, the loss is unlimited." How risky is that? I am going to just let it go and watch what happens. Look forwad to hearing more about your strategies. Thanks for sharing them. Michael
Stanford It is true you are learning and experimenting. But bottom line is the end of the month account balance earned. Not learning. The learning is increasing your bottom line balance. Sell the MOTHER and place a new Credit Spread. Take the windfall profit off the table before you lose it.
OK, but 14 days left to a seemingly safe 10K profit, or 7.5K now. I will think about your suggestion, and will look at doing it when I have some time later this morning. thanks Michael
OK falconview, at your suggestion, I closed all the positions and took the 7.8K in profits. Three of the orders were filled, and one was not, so I switched it to market and it was filled immeidately for a few cents difference. When do you decide to use limit (which TJ said to use, and market? I am hoping that soon we get a month where something crazy happens, so I can experience that with the practice money. Now I will look for more spreads to put on. Thanks Michael
Stanford The TOS funny money web account is slow by 20 mins. So what you read in the option chain cannot be trusted. On a limit order I usually give it an extra .5 cents or .10 cents which is a judgement call, when I place a limit order. Can´t tell you how to trade the monthlies. I have no trading schedule worked out. Only on the weeklies. I would consider looking at a 6 months monthly bar chart and then a six months weekly bar chart and draw trend lines. See which way your monthly bar is growing, either up or down. If you can see the pattern of movement, you can place a Short Straddle credit spread ATM into the action. Wait for one rebound bounce swing. Take a profit and sell another Short Straddle in the direction the monthly bar is growing. Repeat it over and over. Just a thought came to me regarding monthly bars. I´m sitting here twiddling my thumbs, waiting for another 20 mins. to enter a TIMED entry into a Short Strangle. Going for expiration between the strikes. In the meantime, think I will check up on the VIX and the ATR. I´m holding two Vertical credit spreads right now and debating putting on another PUT vertical as I have nothing in that direction and will not cost me any margin to do so. My trades expire tomorrow Friday.
Well that was an interesting experience! Seems I had $42,000 left in my account. Tried to put on a 10 contract Short Strangle at .55 cents limit, but it got rejected by the software. I couldn´t figure out the margin requirement, so I put one on for just 2 contracts, same order of the 550-480 in the OEX and got FILLED at ..65 cents. So now I know TWO NEW THINGS! a) The margin was $9000 roughly per contract, or $18,000. b) Now what the heck was the other? Scratch head a bit. Can´t remember. It doesn´t earn much though in small lots. Like only a $100 and $11.80 commission. For a net of $98.20 for two contracts. In order to trade a SHORT STRANGLE in 10 lots I would need $90,000 in margin. Thats worse than Vertical Credit Spreads. So I guess I will skip the SHORT STRANGLE in the future if my account lives through this tomorrow. I´m presuming the margin requirement for the SHORT STRADDLE will be the same. Which then makes both types of trades useless, except for the very rich. So much for that, a lot of learning about nothing practical.
On the tos charts are all the studies you can add to the chart. I have been looking at MACD and the Williams %R, when you are talking about drawing trend lines, which of the studies do you like? Any other studies in general that you find to bee the most usefull? Thanks Michael
Falconview, if you just click on the adjust account, you can add in more money. I did it just to see, and put in another 100K, try that. Michael
To Stanford Well thanks for that info on adjusting the account balance. I am though trying to trade the account like a REAL MONEY account as that of itself is a learning process. SPENT THREE WEEKS LEARNING TO TRADE THE SHORT STRADDLE AND THE SHORT STRANGLE and while I was successful, when it came time to implement the strategies it was a waste of effort. Reason is that Vertical Credit Speads require $500 per contract margin Short Straddle credit spread requires $9000 per contract Short Strangle credit spread requires $9000 per contract. From a cost effective viewpoint RISK/REWARD they are not practical. Very hard to believe a Vertical Credit Spread is used because it is the cheapest strategy!