Week 3 update for unbalanced short straddle: ESM8 settled at 1389. P1385 settled at 11.30, and the C1385 settled at 15.30. Maintenance margin is $12,178.00. Gain-to-date is $3,328.50. Total option value is $3225.00. This week's stop loss is $7875.00. Again, I will cover the ITM option on either Thursday or Friday. So far, a balanced straddle would hve been a little more profitable, but if the market settles near the fringes, then the unbalanced trade is more profitable. Couple of observations with newguy's trade. First, he has an unbalanced position, which I find interesting. Second, the placement of the 1360-1315 bull put spread is very accurate, according to technical analysis (below support). On the other hand, the unbalanced bear call spread appears to be below resistance of the 1420 level. I do understand that all of your legs are placed based on technical analysis with some intuition thrown in. And, to your credit, your intuition has been pretty good. What happens to your trade if the market does approach or exceed the 1420 level (rhetorical question)? We will see. If the market settles near 1420 for me, then my gain is a little below Friday's gain-to-date.
whipsaw wed! not much technical going on, just the mm shaking out the little guys on both sides before option x. Tomorrow will be another wild day. 3x June 1400/1480 short call spread opened, entry point 1419 at 36pt premium. JW, when i opened the may 1400/1450 call spread, 1400 was heavy resistence and my bias at the time was that we are not likely be above 1400 at expiration (guess we will find out in 2 days!). My plan remains unchanged, but not much left to do anyway. If es is below or around 1420, i will do nothing and close out the itm (if any) position on last day. If es gaps past 1420 on strong volume, will make decision then to either shut it down and take the loss (if i feel it's not a fake), or roll over. "Gain-to-date is $3,328.50. Total option value is $3225.00", did you close out some positions already? How is your gain greater than your option total value?
Total premium received was $6,553.50. Subtract the current option value of $3225.00, and you will have a gain of $3,328.50. Anyway, Wednesday was a bad day. It is tougher to make decisions, for I have to live off my profits. Earlier in the week, my gains were around $3800 and $4000.00. Of course, I let those ride. Then, Wednesday happens. I watch my gains go from that level to the $2900.00 level. So, I closed out my ITM call leg, and basically locked in a gain of $2900--as long as the OTM put expires OTM. Of course, if I didn't do anything, I would have been rewarded. When trading for a living, I have found that being piggish is foolish. The $2900.00 level is my "minimally acceptable" gain level. An observation: after two rounds of short straddles, I have found that my maximum gains for the trade occur when the current, total premium is about 50% of the initial total premium received--in terms of premium per single contract straddle. In other words, my initial premium was 52.25 for a single short straddle for May (25.50 premium from the call and 26.75 from the put). At the end of last week, the total premium dropped to 26.60. It was at that point, I believe, that I should be looking for the exit. If I knew about this observation, I would have had better profits from both straddles. Along with a sliding stop-loss, the risk:reward ratio is still pretty favorable. I will sum up my results on Saturday.
Final Update for May08 short straddle. To recap, I sold 3 P1385 at 26.75 and sold 2 C1385 at 25.50. Total premium received: $6562.00. Initial margin was 17,296. The initial VIX was 20.47. On 5/16, the ES closed at 1425.75. The closing VIX was 16.47. The puts expired OTM. The calls would be assigned--giving me a short position consisting of 2 ES futures at 1385. This would result in a loss (I would have covered the calls right before the close) of 40.75 points. My gain, theoretically, would have been $2487.00. If I did a balanced (3:3) straddle, then my gain would have been: $1725.00. In actuality, I exited the C1385 at 36 on Wednesday May 14, giving me an actual profit of: $2952.00. My return on margin was: $2952/$17296=17%. An observation: I was fooling with Interactive Broker's Margin What-If's and I have found that IB's margin requirements are higher. My current broker uses the more expensive margin per leg plus the option value other the other leg. For the above initial margin: (3x4500) + 3796. It looks like IB uses the more expensive leg's margin plus the total premium. This is really no big deal since the premium sits in the account anyway.
Great thread JW, will you continue with this strategy and now open a new June or July straddle? Especially with VIX now so low?
May summary: -Short 2x ESM8 at 1411, exit 1395, +32pts -> +$1600 -Short 1x May 1400C at 20pt, exit 18.75, +1pt -> +$50 -Short 6x May 1400C/1450C at 17pt, exit 20pt, -18pt -> -$900 -Short 10x May 1365P/1315P at 5pt, exit 0pt, +50pt -> $2500 May p&l: +$3200 after commission Current open position: -Short 3x June 1400C at 40pt ------------------------- Going to negative on the 1400c/1450c call contract was upsetting. I dont think i did anything wrong on my TA as the last week was just whipsaw. The mistake was i got a bit too cocky/greedy and did not apply the overwrite rule which is to take profit when premium becomes low. Had many opportunities to make at least a $3000 gain on that call spread, but did not take it. -------------------------------- One note on IB, they use an automated system to close out your position very shortly after margin is hit. I was heavily short on USO at 102 for 1.2 premium. When the USO gapped up to atm 102 on expiration, i went into a margin call for like $900 even though i am still +0.6 profit. Man...then IB decided to automatically close out my 3x1480C contract that is part of my 1400/1480 call spread, that caused my margin to gap up by 15k, which would caused further liqudation on god knows what. Luckily i was at the screen, and closed out a few USO contract to bring things back to normal. I spoke with the CS, he said there is an option in IB that let you set which position you want the automated system to liquidate first. Make sure you do that if you are leveraged, otherwise it will just close out random positions....
Closed: -Short 3x June 1400C at 40pt, exit at 16(after commission), +72pt -> +$3600 Opened: -Short 4x June 1350P at 18pt June realized p&l: +$3600 ------------------------- Long term bias is still negative, however short term(week) we may be looking at move up: - Hitting multiple levels of strong support at 1370 area again, 1350 is also another solid support below - 4 consective days of significant downward movement , 50pt drop! - Today and Tuesday are good contrarian indicators due to the memorial day long weekend low volume, if the market moves in 1 direction significantly, wed will likely move in the opposite direction.
June Trades: 1 contact short straddle P1425/C1425. This trade is -$650.00. 2 contract short straddle P1420/C1420. This trade is -$1,100.00. Neither trade hit my mental stop loss of 50%. So, next week the stop loss drops to 40%. Does this trade have a chance before getting stopped out? Well, the VIX has increased from 16 to 19, but still below 21, and the upper bollinger band is in a downward trend. The volume on the ESM08, on Wednesday, was slightly above average. There was some buying on Wednesday. Thursday had less volume than Wednesday, and it looked like a pause day. Friday had less volume than Thursday. Looked like the buyers went on vacation early, and the panic selling/profit taking occurred on Friday. We will see; my new stop losses go into effect Monday.
JW...are you using the daily's for the BB's and do you also use slow or fast stochastics (sp?) ? thanks
Yes, I look at daily movement of the VIX, and I only use BB as a guide. Used to use stochastics, but for the purposes of looking at the VIX (remember, it isn't traded), I just use BB. I am looking at the general trend.