stradles vs. strangles

Discussion in 'Options' started by ludmil, Dec 27, 2005.

  1. ludmil


    has anybody long term experience with profitability of selling naked stradles vs. selling naked strangles.i mean netto(after expenses for covering,komissions etc.)
  2. I found it was psychologically more difficult to complete the entire round-trip trade of selling a (naked) straddle. There were too many decisions, too often, for my taste. To leg-out or not to leg-out? If so, when and why? To roll-out or not to roll-out? If so, when and why?

    I found it was much easier, psychologically, to do an entire round-trip when the initial play is to sell a strangle (naked). To me, the decisions about exit are a lot fewer and a lot more straightforward. I like to write strikes 2.0 standard deviations out of the money (on both sides), using four week implied volatility as the method of calculating standard deviation.

    Easiest of all, is to sell a pair of credit spreads: one with puts (a "bear vertical spread") and, simultaneously, another with calls (a "bull vertical spread"). This is a tradeoff: much greater safety, but smaller payoff. YMMV. IMHO.
  3. What kind of margin requirement do you have when selling naked strangles?

    At 2.0 SD, there would typically be very little premium if selling spreads.
  4. ludmil


    selling spreads onj both sides and strangles at 2 SD-you don't like risk:) .what is your anual profit with that strategy?
  5. ludmil


    i don't like to much follow up action-i hate paying comissions! but with strangles you have much bigger loss if things go wrong(because of smaller premium received).i'm not sure what's better(matematicaly)-ignoring psyhology.what's you experience?how long time you traded that way?
  6. If you are going to sell premium through straddles or strangles, better off limiting the risk of this approach and doing Iron Condors (sell strangle and buy further OTM strangle). The credits are much smaller but so is the risk and if you manage your risk well you will never blow up your whole account or take the maximum loss and at least you will live the next day. You simply collect small premium month to month.

    This is still risky and not for everyone but if you are dead set on doing naked strangles or straddles, at least compare them to Iron Condors.
  7. I have sold straddles and strangles intermittently over the last three years. I sell only when I see vol either going nowhere or down (I don't sell every month). I have also sold otm puts when I do not mind if I were forced to buy the underlying.

    I have soundly beaten the market, but selling vol is psychologically difficult if you do not like being wrong. One MUST be prepared to hedge, and to get chopped up when what appear to be newly trending markets go back to being trendless (right after you hedge).

    I prefer selling straddles because of better liquidity and less risk in terms of a gap move. I do like to sell otm puts on indices and etfs to take advantage of the skew, but I keep gtc stop orders to protect myself (I do not trade for a living--I am an academic)

    I keep a large cash reserve, because I do not want to be one of those losers who like Icarus flew too close to the sun of gamma and vega and then watched their accounts melt away and plunge. The mythological Greek Icarus would have sold as many straddles as his account would bear, cleaned up for six months, and then lost it all and more in a week.

    I try to grind out a small profit every month while looking out for danger. Dull, but it works (usually) for me.

    It is one of the most difficult ways I know to make an easy buck.
  8. cnms2


    It seems you're a beginner, so my advice is: be careful!

    It is irrelevant if one person traded your strategy for long time and if he was successful.

    Mathematically all options and strategies have the same negative expectancy. The market prices them correctly and you have to pay slippage and commissions. Only few, skilled and well positioned retail traders could make a buck from arbitrage.

    You make money with options by correctly forecasting the underlying price and options volatility, then implementing the appropriate strategy, and rigorously observing money management rules.

    You should begin by studying.
  9. ludmil


    of course i have to control the risk!i don't look for just one strategy-my intention is to choose them(starddles vs. strangles and risk managment) depending from the situation and underlying,but i have to know the odds generaly.unfortunately i lake long term experience:(
  10. ludmil


    i started my studying some monts ago(not counting some years amateur directional trading besides stock picking).your answer is close to my opinion,but in the books i read i didn't find a lot of anwers-so i aks them here:)
    so:IV on indexes is almost higher than actual.doesn't that mean that selling premium on them has +mat.expectation?
    #10     Dec 27, 2005