Tips, Tricks & Nuances Of Making Strategies Work And When And How?

Discussion in 'Strategy Development' started by falconview, Jun 25, 2012.

  1. I thought I'd start a new thread on classical strategies for option trading. There are so many little tricks, successful traders learn by osmosis and experience, that make a classical strategy work. Without which a NOVICE like me, flounders around just losing money.

    I wondered if people wanted to share? In other forums, I've met some very nice guys, who have shared their winning way they work. There seems to be some sort of SECRET type culture about a lot of this, ( one time, YEARS AGO, some sales types made money selling SECRETS, but you don't see that anymore ) but far as I can see, in the macro picture of trading and all the varieties, learning the WHEN and HOW to apply a strategy correctly, to profit, doesn't seem to effect the MACRO PICTURE of the thousands of traders doing everything under the sun out there.

    What little bit I've learned is that all strategies work, if you know, HOW, WHEN and what little nuance or twist on using any strategy, makes all the difference in the world. Everybody apparently learns to work a strategy, or several and finds a niche to trade in. At least among us under capitalized retail traders.

    SO WHATS YOUR FAVORITE OPTION STRATEGY AND HOW DO YOU USE IT?
     
  2. TIPS, TRICKS AND NUANCES.

    One of the things I found after much research, is that a premium which is swelling, is best followed as it trends with the ten minute chart. I use the DMI indicator. But ten minutes seems to be the TIME frame, that sees the collapse of premium stop, or loss of volatility. Either it holds a bit and goes sideways, or in the following ten minutes the premium balloon starts collapsing. The trend may still go up, or down, but it does not hold the premium as the buying pressure has slowed.
     
  3. jcl

    jcl

    Your question is too unspecific. There are many tricks. Most of them are quite trivial and straightforward though, and you'll discover them anyway when you look into a certain problem.
     
  4. Dolemite


    Registered: Jan 2003
    Posts: 67


    06-15-11 05:08 PM

    Since everyone seems to be a seller of premium on these down moves, why not buy an SPX straddle and finance the theta with otm VIX call credit spreads?

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    DerivativesG


    Registered: Mar 2007
    Posts: 58


    06-15-11 05:24 PM

    Quote from Dolemite:

    Since everyone seems to be a seller of premium on these down moves, why not buy an SPX straddle and finance the theta with otm VIX call credit spreads?



    Hallelujah!
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  5. Good quote from Dolomite.

    " I spent 14 years trying to find that one option trade I could put on like a robot and exceed average market returns. Unfortunately, I couldn't find it."
     
  6. eudaemon


    Registered: Jan 2011
    Posts: 972


    06-18-11 01:02 PM

    whassup falconview.

    Here's something I use that you might be interested in experimenting with:

    1-You pick a price level where "price will not stay for a long time". This is tricky but not impossible. This is point X. That's where you initiate the spread. You attempt to initiate at a price near "middle" and not pay market unless the bid-ask is very tight and you are nearing the end of the day.

    2-If price moves towards 1, you do nothing except you place your offer for the whole spread to exit for a small profit. (This happens often, because neither you or me can predict price accurately 100% of the time, or even 85% or 75% for extended periods of time, no matter what other assholes tell you). With price increasing, normally volatility drops slightly and you have a fair chance of getting filled. (This can happen a few hours to days later, depending on the market and on your greedy offer).

    3-If price hits point 2, then you DOUBLE your risk by increasing your position. AT THE MARKET. Here you are in a maximum position of agression. If you can create somehow an earthquake in Japan, you do it!.

    4-If prices continue to slide, you find a way to exit some of your position, at a profit or sell some puts to DIMINISH your risk while prices continue to crash. This is in case prices stop crashing and rebound.

    5-If after hitting point 2, and you have doubled your risk, prices return slowly to point 1, you seek to exit at least half your position with a 1-2 tic profit and diminish your risk again, till you can exit the rest at small profit if prices continue to increase (and volat drop) or you get a shot again at point 2 to double your position again.

    All of the above work much better if you manage to initiate near an extreme in price, and have a bearish outlook.

    The beauty of this strategy is that catastrophic risk is always playing for you, and that you can control your exposure at all times. The downside is that time decay works against, and therefore you cannot initiate it at random, but pick your spots.

    If you add/reduce puts/calls at key support-resistance levels, you can "scalp your way out" of the time decay effects that are working against you on the left side of the price graph. On the right side of the graph, time works for you and you can afford to be patient.

    The strategy works equally well in bull or bear outlooks, but you can experiment with the call-backspread too if you are extremely bullish and forecast an explosive move up.

    Study it and practice it for a few months, and notice the nuances in realtime execution (which are many), getting a good price for the whole of it being the main nuisance.

    Cheers and don't tell it to anyone. OK?.

    Attachment: put_backspread_increasing_volatility.jpg
    This has been downloaded 136 time(s).
     
  7. Dolemite


    Registered: Jan 2003
    Posts: 67


    06-18-11 10:11 PM

    Quote from eudaemon:

    It is like a long straddle, with one wing chopped off at the start, to reduce the cost. It behaves like a straddle on the left side and like a spread on the right side. Also by varying the number of options long versus short you can make it look any shape you want. You do this as position evolves.

    The idea is to diminish your risk till your risk is zero, very low, or even positive. You don't know how it'll evolve at the outset, but you know how you will react when prices get there. For example if volatility explodes and price drops, you can sell a number of at the money (now at lower strikes) puts at high premium. You diminish your gain if price keeps crashing, but you reduce your risk to zero or at least decrease it, etc.

    For example>



    Backspreads are great trades on vehicles that have had a big up day or a long run up. Volatility has come out and there isn't as much fear being priced in to those otm options you are buying so you can get them on at a lot better price. As eudaemon mentioned, play with the short to long ratios along with where the short is to get the trade you like. You can even look at other expiration months to manipulate the theta/ vega of your trade. Backspreads have been a huge part of my portfolio insurance over the years and they have really saved my bacon. Generally you will find that put backspreads perform better than call backspreads. As the price climbs your additional long calls in your call backspread don't gain like the additional long puts in your put backspread do on the downside.
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    I never did understand this contribution, as at the time, my understanding of different things was probably too inadequate. May still be, but sounds interesting.
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  8. Also try to think on your returns as a % of total risk taken, instead of $ and cents.
     
  9. Page 30, Trading long straddles contributions.


    Reading a bit on Long Straddles. Seems in a 1 month to 2 month straddle buying system. If you apply this money management rule, you boost your profits overall.

    1) Close STRADDLE after it loses 10% of the spread value.

    2) Let gaining Straddle run.
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    JUST RE-READING THIS, AFTER COLLECTING TIDBITS OF LORE. HOW WOULD A LONG STRADDLE LOSE 10%?
     
  10. PetaDollar

    PetaDollar Moderator

    Hi Folks, last year I started studying options seriously after experimenting with a straddle trade in this ET Journal. If any of you are experimenting with straddle techniques I encourage you to post in that journal.
    Thanks
    Pete
     
    #10     Jun 26, 2012