I read the article about the "Asian straddle" in Futures (which I get for free), and I don't know about the Asian straddles available in NJ, but the Asian straddle I had in MN (also, for free) was much more stimulating that the article in Futures. Apparently the Futures "Asian straddle" involves selling three sets of puts and calls 5 handles apart. It seems rather superfluous: if you're going to sell a straddle and hedge with the underlying, why sell three, and not just one?
You missed the point of the article, although I admint that the article is vague in that he assumes alot of background. Read up on (negative) gamma scalping in Cottle. Also need to understand how to construct synthetic straddles to understand the ratios he mentions in futs mag article. None of this is given and assumed known already. Also in the futs mag article he makes it sound as if the turtle system is optional. It is not and has to be understood in the context of gamma scalping and synthetic straddles. This is a variation on that on a longer time frame. Since this system is dynamic, it is very difficult to chart on a platform like TOS. nitro
I know how to construct synthetic straddles and other combinations and do so often, usually with index futures/options. I just didn't find the article that insightful. After all, FUTURES is really a magazine to get retail traders interested in trading futures and providing the necessary liquidity the markets need. I like reading it, but there is really not a lot there of substance. Good light reading in the bathroom, imo. Actually, the strategy would make more sense if some of the positions were legged into, but the author does not recommend that.
I must be missing something. Does it involve selling 90, 95, 100 puts and 100, 105, 110 on the calls, one per strike and hedging into the trend with spot?
No, you aren't missing much, if anything (you don't miss much around here ) . For the most part, yes. The author uses SPX options and hedges with 2 ES. To me it would make more sense simply to sell the ES options (good liquidity, small spread), but, whatever works for him. I guess. I have no problem with selling (or buying) options and hedging with the underlying (I learned it in Natenberg), but the strategy to me makes a lot more sense as a vol play (selling what appears to be high vol and buying back at what hopefully will be lower vol, or vice versa), and/or as a market timing play (sell options close to the strike that you predict the underlying will be headed). The "Asian straddle," at least acc to the article, is neither. Indeed, the author admits that he put the strategy on during a period of low volatility, and that he was predicting at the time higher vol. That to me makes no sense. To me, at least, it would make more sense, in that kind of environment, to buy slightly otm puts (30-35 delta) a few months out and hedge with buying the underlying. When volatility rises, sell the now higher vol but still otm puts and sell the underlying. I also have no problem with being short (or long) options at varying strikes. But I would leg into them and hedge accordingly. The author, at least in the example he gives, puts them all on at once. That to me seems unnecessary, though I could see how it might be an easier way to become delta neutral. The Asian straddle: a straddle and two combinations, and an exotic name with a giggle effect.
i guess the author was trying to show how a retail trader can make a pure vol play(?) If sold in the right ratios selling a set of straddles and hedging with the underlying is similar to selling a variance swap. key being to make your gamma reasonably constant over a large enough range of strikes. Q1
Speaking on Vols trades... I went to Larry McMillan seminar in Vegas yesterday. He strongly advocates to break past IV # into percentile and go long combos on "undervalue" IV candidates ( current IV below 10th percentile). Hmmm , I wonder how this strategy worked for the last two+ years while 10th percentile had a new "lower lows" almost every month.
Over the past year there WERE spikes in vol in which one could have sold vol bought earlier and cheaper. When VIX gets to 10, I look to buy (and hedge, so I can sell on higher vol).
More of a vol-swap. There is gamma curvature in selling the "XMAS tree" with this trade. You can't flatten gamma w/o buying some. It's not that it's a terribly bad idea, but it's simply selling the strip vols. I'd rather sell a 3-lot atm straddle into peak-gamma than sell 3-lots of stepped, increasing curvature.