Hmmmnn! Regarding the argument, I was wondering what Volume had to do with it? But as the argument progresses I think you are referring to volatility. I´m not trading the long straddle by volatility, I´m trading mechanically in a method I´m not yet sure if it works.
If I had to say what the issue is, it's the fact that you believe in a "mechanical" system. Instead, you should build yourself a model of some sort that would tell you if now is a good time to buy vol or not. While you might have a right idea on the general bias of vol (e.g. implied vol for indices and other liquid instruments is usually rich), you need to have some sort of tactical tool that will tell you if this is the right time to enter into the trade.
All very interesting. I´m trying to fit the long straddle into a shorter time frame. One week, or 5 trading days. This of necessity in the short period I am doing it means that the commissions become an ever increasing cut of the profit. I think right now it works out to about 30%. I can see where I could shorten the time span, but the commission part, would increase as a function of the gross profit and not leaving much net profit. I would not qualify under the DAY TRADER RULE I think? With a 5 day straddle, I believe I can do one completed straddle trade a week. Since I leg into the straddle, I am not at all sure how many trades that would be considered. If I was to shorten the period of the trade, I believe I might close two or even three straddles per week. I kind of believe, but I am guessing, that the PUTS and CALLS would be treated individually, even though I am actually trading long straddles. If I go to a shorter period I would end up with higher commissions, but it looks like I could do 3% net profit per week. Besides the threat of Damocles Sword over my head with the DAY TRADER RULE business would wreck my strategy. By legging in, I get to shave off some price on the entry, which all helps. So I am going to finish this test and then research a LEAP OPTION type of trade, which might run a month or two.
Implied Volatility Well I am trading SPY. I do not usually consider volatility in SPY as it is rather staid in that sense. However, I plugged the IV into TOS to see what we have and on the 128 strike the Call IV is 15.75 and the PUT IV is 16.96 Not sure what any of this means tradewise, as a day or two back it was reading 17% thereabouts.
Falconview- Are you going to take sle's advice and work on some kind of vol forecasting model before going out and putting on trades?
The short answer is NO! Because I am testing a mechanical system, I copied down from 25 years ago and it has no provision for the classic traditional volatility application recommended on the internet advisory pages. The long answer is, that I am interested in using volatility, though it does not apply to this mechanical statistical system. My reading on it, is that you look for when IV is lower than HV? To put on a long straddle trade. I do have IV on TOS. Where do you find HV? I was hoping somebody on here was more knowledgeable with trading Long Straddles with bells and whistles and tweaks in the methodology. I cannot even find this mechanical statistical system on the internet, which either means it is no good and has disappeared, or is a big secret and, or has dropped out of usage as people who developed it are dead. Give me a couple of weeks more and I can tell you better, which of the three versions are true.
You don't delta hedge frequently, you continually adjust your delta hedge real time during the trading day. Good for you. Obviously your one year of "market making" does not make you an expert in all kinds of options market making. Here you can learn from another (options) market maker that certain types of trades are called income trades and some are called speculative trades. http://www.sheridanmentoring.com/events Of course you are either long or short gamma and you follow the other greeks such as vega, omega, theta etc. and that decision is so obvious, but why are you telling us stuff that is options 101? What's your point?
You won't find this mechanical statistical system on the internet. Would you spill out the details of your successful trading system on the internet? The answer is no.
Very cute! Love it. All I know when I copied this down in my notes some 25 years ago, the return was touted to be 30% a year. I´m interested to see if it works?