Welll I got those three messages copied and printed out. I think at the moment it seems too advanced for me. I need more experience with just plain Long Straddles. Going to file the copy here and look at it a bit later in my print out, in a few days, or weeks. I need to get a sound basis in the Long Straddle first and the GREEKS. Plus my actual CASH money is limited. $2200 that I want to speculate with, to see if I can build back my bank to $10000, from $7200. One lesson at a time, firmly in my brain. Right now guess I will concentrate on the GREEKS and the effects of them in relation to the plain LONG STRADDLE, or variations. Once I´m comfortable thinking and acting in those terms, guess I can become more sophisticated. Its a SUNDAY early, just after midnight my time. Going to write down the ways I want to use the LONG STRADDLE during the coming month and list them. I recollect the various reports, the weekly trade, the straight volatility trade and the overlapping straddle trades. Think that will give me enough to deal with for now. I´ll look up my notes on scrap paper and try to organize a trading plan for the month around them. At least to try and trade in paper money. It would help to have just one trade known to work every time. What would you call that one you just sent? The BACK SPREAD morphed out of the Long Straddle? I am trying to understand the relationship between VIX and Implied volatility? Anybody got any comments on that? I wonder what a Long Straddle would do in VIX options? Used the VIX options in PAIRS trading and other than going exactly opposite, worked the same as an index at the time only in reverse. Somebody said, that GOOGLE dumped on Thursday and that made the options increase from the VIX spike volatility. Google apparently in the Long Straddle. From my recent notes Saturday and internet reading studies, I see that both the CALL and PUT option premiums increase together, though one more than the other, when there is a volatility spike. That answered the question about GOOGLE. Yet my SPY long straddle, lost a ton of money, about - $338 I think. I´m not sure if that was a clerical error and if not, what the reason for that would be on the same volatility spike? This was the same Thursday to Friday overnight weekly trade. I seem to have lost my scratch paper with the calculations on it for the SPY Long Straddle. So can only plan on repeating the experiment next Thursday to clarify. The GLD trade and the QQQ trade more or less made a solid little bit and I have the feeling that is the norm and how it is supposed to work, for the weekly? Aaaahhh! Finally found last weeks, IV numbers I had been jotting down on scrap paper. They were in the waste basket. My desk top is lousy with scratch paper notes on different subjects. ( Trying to do the enginneering on a COLD FUSION heating system for a boiler steam supply to a turbine electrical generator. The place were I am is short of electricity at affordable prices. Thinking of forming a company to supply electricity to the National Grid. Would like to do a prototype 275 kw plant and build up to megawatts.) Confirms looking at them, the Long Straddles, that low volatility as in IV, for the ATM Long Straddle is below 16. So, I can remember that. Will put on a Long Straddle anytime the ATM IV is at 16 or lower. That will be a MUST TRADE! In Virtual Paper Trading anyway for a week or two, until I confirm it in my mind. IV on Friday close, was over 19, don´t know if that is HIGH or low and since the actual index action in SPY has been going up to the top of the trading range and is now back down again to the original bottom of the trading range and where I started the ATM Long Straddle, what I do notice is that the LONG STRADDLE remains swollen with positive premium and if it is still there Monday morning will cash it out, instead of waiting for a longer play. GAMMA is .08. I have no reference yet to know if that is very much or not. I did read up on GAMMA scalping, but can´t remember now what to do about it and when? Will have to read it again, as I just re-learned that GAMMA is highest ATM strike, and goes lower in the numbers as you move away from it. As you can see I´m trying to learn the GREEKS. When to Gamma scalp and take a profit from slightly advanced swollen premium is the basic question here. Is Gamma .08 a good number to sell is the question? What happens in a Trading Range, and you are expecting a breakout in a couple of days going into a trend? If IV is high and you wish to put on a Long Straddle to follow the trend? I guess buying high IV, to do trend following, will only result in the IV going even higher, if the market starts to trend? The early conclusion here is definitely to agree that in the LONG STRADDLE, it is the IV that matters to dictate price premium and not any short trend swings in a trading range, back and forth. Comments on these thoughts?
Found a nice Volatillity chart with ISE Gives HV and current IV at current ATM options. For volatility trading
Summary of my understanding of the GREEKS were relevant to the LONG STRADDLE. Please correct me where I am wrong. __________________________ LONG STRADDLE TRADING LEARNING NOTES Left alone, the LONG STRADDLE is a pure volatility trade. Buy when volatility is low and sell when it blossoms. Usually when you expect a breakout from congestion, pennants and flags, end of trends. IV numbers seem to be all over the place. Figuring out a 10 day average IV and compare it to the HISTORICAL 10 Day Volatility THE GREEKS: GAMMA - Measures the speed of Delta movement change. Calls measure positive gamma numbers, while the PUTS measure in negative GAMMA numbers. You can trade around the REGRESSION TO THE MEAN. ATM gamma is zero, the starting point. You can ADD the negative and positive gamma from the CALLS and PUTS to get a GAMMA NUMBER for the LONG STRADDLE. There is something called GAMMA SCALPING, but I haven´t figured it out yet? If you combine a LONG STRADDLE, two GAMMAS from the PUTS and CALLS, a POSITIVE GAMMA HELPS THE TRADE. So long as the total GAMMA is positive in the Long Straddle, the trade is GOOD. Ideas to identify for GAMMA SCALPING. Combine identifying a TREND CHANGE with chart trend lines, or also change in Delta, which would be the VEGA number, with the total GAMMA number for the Long Straddle. Gamma is HIGHEST at the money options. ATM. For the individual PUTS or CALLS, Gamma is highest ATM, the number goes negative, either way for PUT, or CALLS either OTM or ITM. If the GAMMA number is moving POSITIVE, you want the market to move quickly. If the GAMMA number is moving NEGATIVE, you want the market to move slowly. VEGA - Is the SENSITIVITY TO VOLATILITY ( IV ) MOVEMENT - When the VEGA is going UP, it HELPS the trade, when it is going down it HURTS the trade. VEGA effects ATM options most in a LONG STRADDLE, as premiums change caused by IV changes. Not sure how to use this yet? DELTA When the indexes, or stocks are going UP or Down, the movement of DELTA shows volatility and the Long Straddle premiums will expand in the LONG STRADDLE. In a TRADING RANGE, both the PUTS and CALL premiums increase. In a trend, only one side will increase. THETA Whatever number you start out with, will grow as the options move closer to expiration. The number measures the TIME DECAY effecting your LONG STRADDLE TRADE. IMPLIED VOLATILITY Seems to be all over the place. I am guessing you need a 10 day, or 5 day comparison of the average of the IV, compared to the HV average for the same period. Implied Volatility in a LONG STRADDLE as it occurs, effects both sides of the LONG STRADDLE, whether in a trading range, going up or down in short movements. The IV expands the premiums. LONG STRADDLE directional trading You can close both sides of the Long Straddle, or if it gains enough to pay for both sides, by closing the winner, you can let the loser ride, in case you get a market reversal and it starts to make back some money. It does not matter if it expires if the WINNER of the LONG STRADDLE has covered the initial cost of the losing side. You will save the commission. WHEN TO TRADE THE LONG STRADDLE When you expect the market to break out of congestion, either way. When there is going to be a market announcement that will excite the market. First Friday of the month, EARNINGS REPORT being the major one. The following week sometime, the CPI or Cnsumer Price Index report will come out. So will the Podcers Price Report PPI. Doesn´t matter which way the market reads it, so long as it moves it. You want volatility. DELTA HEDGING Not sure if this works with the Long Straddle, but when you own the STOCK and you buy OPTIONS, you balance PUTS and CALLS to keep your DELTA at 1.0, or 100%. You add or subtract options, to do this. Your stock value would be regarded as Delta 1.0 or 100%. The ATM options you buy would be for example; Four .5 Delta ATM options to equal the stock value of 1.0 Delta. LONG STRADDLE TARGET EXITS. You can use the True Range for the expected day performance of the underlying index, etc. A 3 day range might be workable?
falconview ...... You are over analyzing what is a very simple option position - Long Straddle. A Long Straddle is nothing more than buying a call with a strike greater than the underlining, and buying a put with a strike less than the underlining. Make a small list of stocks to watch, 5 stocks is enough. QQQ should be included. Paper trade a Long Straddle, see description of Long Straddle above. Don't get bogged down with VEGA, GAMMA, ADJUSTMENTS, VOLATILLITY etc. Be aware of earnings announcements for any stock on your list. Don't let a position get auto exercised, close them to be on the safe side. Place a real trade. My recommendation for a real live trade is a QQQ straddle to be opened this Thursday June 23, 2011*. Last trading day is the next day so it must be closed on Friday June 24, 2011 Buy QQQ Jun 2011 53.00 put http://finance.yahoo.com/q?s=QQQ110624P00053000 QQQ presently @ $53.79 Buy QQQ Jun 2011 54.000 call http://finance.yahoo.com/q?s=QQQ110624C00054000 Exact strikes will depend on what the QQQ is trading at on June 23. Total debt will be about $35.00 *I might enter this trade on Wednesday, June 22. I will update this trade on June 22 or June 23 when the strikes and prices are confirmed.
Over analyzing. I've been known to do that many, many times. I will put the trade on Thursday, this is the weekly right? Will use real money account. I trust your judgment and recommendation, so there it is! You are inspirational and a mentor. I did notice that GLD and QQQ seem to work more or less the same. Actually I'm trying to learn the GREEKS. I've let those kibitzers who criticize constantly across some forums, get my goat, by not bothering with the GREEKS. Still I do realize, you just require to know when Volatility will POP, however you do it. Thankyou for the pep talk, really!
Actually, you just described a strangle. A straddle has the put and call at the same strike and expiration.
I haven't read the middle 10 pages of this thread yet, but I was just reading about a guy who mainly does long straddles/strangles. He puts them on before an earnings announcement and closes them just after the announcement. For example he just did one on RIMM, opening 25 JUL long at 34 on Jun 10 for a total cost of 13,000. He closed it out on Jun 17 (day after announcement) for 18,100 (39% profit). There was no mention of greeks or vols. A week before earnings volatility is probably going up but hasn't peaked yet, and premium might be cheap compared to a day or two before. I had some luck doing some "reverse" double diagonals last earnings season on some high profile stocks like GOOG. I did a long straddle in the front month and shorted a strangle the following month. These were paper trades.
Thanks ...... I stand corrected. Doesn't seem right though, I think they have it backwards. Straddle definition is "To stand or sit with a leg on each side" Strangle definition is "Squeezing the throat so as to choke or suffocate" "Sqeezing" sounds tighter than to "sit with a leg on each side". And a call and put at the same strike is tighter than a call and put at different strikes.
I get the part where the Long Straddle is when the index or stock is right on the strike, while the strangle is offset slightly to accomodate each side. NO PROBLEMA!