Hello All. I have a question regarding straddles setups. In general straddles are supposed to be set at ATM strikes for same contract quantity for calls and puts with same expiry months. How about setting a straddle when expecting a sharp bullish move with buying ITM calls and slightly OTM puts as a ratio, for example 10 calls with 5 puts with the same expiry month or week. Also, what about setting the same legs as above with the calls at one or two months ahead of the expiry month of the puts? Thanks for your feedbacks.
In general, you should base your decisions on your expectations, current option pricing and risk/reward. With this strategy, you should have the expectation that the underlying will be more volatile than current pricing implies, or you have a current up/down bias. Is the plan to continue to trade options after the stock moves, scalp stock or reduce the position over time?
Only you can answer your trading questions...based on your expectations, or ability, to predict movement
Look up Ratio spreads, they'll be cheaper for what you want; a volatile, directional move in the underlying. Not the same as a straddle, as the downside is flat, but it is at least protected. https://www.tradeking.com/education/options/strategies/call-backspread
Straddles can be set up at any strike price you want. Also google "Strips" and "Straps" on straddles.
For Robert: Thanks Robert. My plan is to trade options after the stock makes a move, and thus hedge with the put if bullish but with less cost than buying same strike as the call. For Lawrence: Yes. You are right. But I was wondering if there are any traders that deals with such setups, and thus would like to learn from their experiences. For CyJackX: Yes. Ratio back spreads are ok except for the limited profit potential if the stock goes against you. For El OchoCinco: Strips and straps are almost similar. The difference is that both calls and puts are based on the same strike and month. For cdcaveman: Thanks. Yes I think the SPY is a good choice. I trade it often as well as DIA and QQQ.
i just want to leave some questions as feedback.. - why do you use straddle if you expect sharp bullish move? is there some background or edge you are trying to exploit? - is there any specific market conditions (price, vol, etc) required? or you want to put this setup blindly on any given day? - why do you prefer to trade on index etfs options instead of stocks options? - how do you manage vega exposure on that single legs? since sharp bullish move usually followed by a sharp vol crush.. - how is your experiment so far with longer term puts? nice thread, keep us posted with your study