If I expect the volatility to increase but without any directional bias I'd buy a straddle (correct?). If so, should I buy slightly out of the money or slightly in the money options to maximize the strategy. I'm assuming a holding period of one day.
Hi SS I'm interested in why you say be careful abt selling 4-5k per 100k...are you speaking about selling the straddle/strangle or is this a general recomendation which would include the IC...say on the spx. Straddle/strangle... I guess you would be hedging with stock whereas the IC on the spx you are hedging with spread..(thinking out loud here)
that's my intention too-small profits often.but everything lower than 20-25% per year is not enough-i made 15% only with stocks the last 5 years! by how much have you beaten the market these 3 years?
Looks like we were both referring to the same thing, both describe Iron Condors which are a lower risk alternative to selling straddles but still risky if you poorly manage your margin and strike selection.
is it a good idea to make the iron condors diagonal(buy the hedge long term) if you intend to trade this underlying for longer time?this should increase the profitability!
I am talking about naked selling. If I do iron condors/butterflies I will try to buy the wings some time (days, weeks) AFTER selling (in other words, I leg in). In other words, I might start with a straddle and convert to flies, or, if the position goes against me, hedge. I do not do bear call/bull put spreads (credit spreads). I do not think selling cheap gamma is prudent.
It can be more profitable if you pick the right strikes for the range if you are able to predict that far into the future. However, you will not normally be able to put on the double diagonal for a credit unless you are adept at legging in or there is a large enough vol differential in the term structure (but there is normally a reason for this), so the profits come from rolling front month options successively. You may also find that you will have larger margin requirements in order to have wing strikes in the back month that fit your criteria. The double diagonal has two calendars and two verticals embedded in it so it behaves a little differently to a standard iron condor. It is long vega courtesy of the back month wings. MoMoney.