Had my five hours of sleep and at 2.30 a.m. on a Sunday morning. Fresh mind! Took a look at the Vertical Spread calculator. Entered my stuff. Index QQQ at 59.56 sell the 59 Call at $1.97 and buy the 58 Call at 2.64, with a debit of .67 cents. Hope I got the set up right? This is in paper money. I think I´m doing a Vertical Bull Call Spread. I may not be? It says my maximum profit is 47% at .33 cents. The rest of it didn´t make any sense. The Break even was 58.67 which is obviously nonsense, or I did something wrong. Anyway, lets assume it calculated in reverse, then my Break Even is roughly 1 strike move? I get that I let the thing run, until it gets close to .33 cents and then close it. NEVER ever succeeded in making a Vertical Spread work before when playing with them. Comments by anybody familiar with trading them? ______________________ Been thinking of the LONG STRADDLE in cash I´m holding. The P & F charts using 1 strike boxes, about a week ago, had enough of a swing as it entered congestion sideways to cover my 57 long straddle, ( 5 strike swing ) but as the market moved sideways ( QQQ ) the flutter, or internal swings got shorter. So nothing doing for my two long straddles pretty much over two weeks of sitting around waiting. The P& F chart showed we were forming a pennant, with the bottom sloping upward and we are bucking an overhead resistance line. I expect a breakout UPWARD into a BULL run. So I am still sitting on one Long Straddle, which I now know is not a good thing, in a bull trend, as the IV or VIX moves down, the implied volatility also reduces the premiums. Still my TR + index calculation shows a breakout confirmed upward at QQQ 61.5. Long way from there yet. Still in the 59.67 level of the QQQ. On the other hand, the VIX did break downward past the BULL TREND 18 number and went into VIX 17.50 thereabouts indicating a bull trend was in the making. Some of the index bar charts already show the resistance was broken with new highs. Maybe Fed budget default news will give me a volatility balloon on Monday? Letting me close out the Long Straddle. This is definitely a BULL slow trend. A Fed budget default would make the market plunge into a BEAR trend though they say on the news. In line with my conclusion to trade when I have indications of a bear trend with the long straddle, looking at the P & F charts, that would mean trading when you get 0´s running down in that type of chart, which works only by price movement and not by TIME. the X´s line running upward would not be very good for long straddles due to dropping IV and dropping premiums. I was thinking about my experience experimenting with Pairs trading, in which you trade an index when it is going up and take an opposing set of options in the VIX options, because they gain premium at the same time, because the VIX is going down. I was trying to figure some way you could increase the number of Long Straddles entered. As my original premise was using hourly charts, I could try to catch a trend and complete a long straddle trade once a week. This didn´t work out, because in some kinds of congestion, as showed on P & F charts, the congestion forming a bull penant, or flag, will not have the necessary strength, or wide enough swings to make a short term Long Straddle work. What you need is when the market has a BEAR PENNANT, or FLAG. However, I do my best thinking when I´m sleeping. There is something nagging at the back of my mind, that says in PAIR TRADING, premiums go up in VIX options, in a bull trend. And Index options also go down in premium value in a bull trend. So would it work that you could increase the number of long straddle trades, if in bear moves, you you traded Long Straddles in index options and in bull moves if you traded VIX options, the premiums moving opposite to each other? Will have to try it with a paper trade and see how it works out I guess.
Early 2 a.m. on Monday morning my time. Old man up before the birds. Seeking information on volatile stocks, I ran across an explanation of Beta, that finally taught me what it meant. BETA EXPLANATION Beta 1.0 is in lock step with the markt. BETA measures stock volatility. The bigger the number, the more volatile. So index QQQ running around .10 is not much good for volatility trading. Even when it drops to ,08. So heaven forbid I started looking up Stocks with Beta 2.0 and greater. It making sense if you are trading a volatility trade like the Long Strangle or Straddle, you would want a volatile strock. There are actually some lists of such stocks. Don´t know where this is leading, but I find it interesting.
Well an hour later in early morning research. Looking up BETA stocks more than 2% daily moves. Then that sort of morphed into stocks by percentage and started eliminating everything less than a daily 2% move. Reason for that, in the back of my mind I have heard some of you guys on here talking about 1.5% moves with indexes and some stocks. I get the implication, if not the nuances. Took a look at the spreads. I got the feeling that I´m missing something here. Probably in the market maker spread + commission costs? Anybody care to summarize their experience in the direction this is leading. Short cut a lot of trial and error?
About an hour before close on Monday. This dull market is only good for credit spread traders. Nothing much happening. I got mixed up over the weekend research with BETA and GAMMA in trying to bone up on studying them. Just forget them for now. I have tried a paper trade on a stock, called MOD that is supposed to move 2% in a day. Not doing a darned thing right now and one quick look at the market maker spread, says it is not going to do anything either. Still, I try and see what will happen, it is all educational.
QQQ 59P / 60C strangle - Live trade in progress. QQQ @ $59.53 Buy QQQ Jul 2011 59.00 Put @ $0.4002 http://finance.yahoo.com/q?s=QQQ110729P00059000 Buy QQQ Jul 2011 60.00 Call @ $0.3802 http://finance.yahoo.com/q?s=QQQ110729C00060000 Total debt $78.04 commissions included. Last day of trading July 29, 2011. Will update when I close position.
Had one of those EUREKA moments this morning swinging in my hammock, while waiting for the sun to come up over the nearby valley ridge. The application of the correct month in which to apply a long straddle, as dictated by the VIX ( Volatility ) For VIX 15 to 18, which is a long slow shallow Bull Trend. You probably require a 3 rd month out options. For VIX 19 to 25, you can use second month options. Still weak market moves. For VIX 26/28 and above, you use SAME MONTH options. You have the volatility representing market action. Think I will be putting on a QQQ 60 long straddle as well Forex Forex, if I get the ISE volatility buy signal.
Forex Forex I take it this must be a weekly option if last day of trading is July 29th. Just hit me as I re-read your post.
Well my experimental paper trade on MOD, a manufacture stock, failed. One side of the STRADDLE went to 0.00, the PUT side and the other made a bit, but the spread lost $76, since there were no offers for PUTS. Must have been too thinly traded or something? What was the lesson learned then? ___________________________________ Playing with a WEEKLY STRADDLE using Vertical debit spreads instead of a put and call. See what will happen? In QQQ. Maximum profit occurs if QQQ expires between the QQQ strike at 61 and strike 59 on Friday. Have no idea of how to calculate the profit yet. Paper trading. _________________________________ Paper traded a Sept spy calls, from yesterday, but it lost money, even though the index went up. Closed it off. ____________________________________