Hello... I will probably get chastised by the many pro's on this board, for not being good enough to do this, but here goes.. I have opened a small position (2 contracts) on what TOS calls a double diagonal, straddle, strangle swap.. (go figure). Now, I am learning and would like to ask all the experts here what the pitfalls of this sort of position is and what sort of rules luse while employing this strategy. For references, I sold SPY SEP 126 call and put, and long DEC 123put and long DEC 129 call. The result: fairly neutral delta, pos. theta and BEP 120 ish and 135 ish. Any comments and suggestions appreciated.. Mahalo..
It's a good idea to paper trade strategies in order to get the feel of them. But the real lesson learned occurs when you have actual money on the line and monitor the position daily. More often than not, paper trading involves a cursory glance but an actual position involves an ongoing evaluation because you have P&L choices as the underlying moves and time passes. So just remember to trade small when learning so if the tuition is charged, it's not exhorbitant (g). The simplest rule is, "Don't lose money" :->) I'm no expert but here's my two cents anyway. The main pitfalls are: 1) The underlying moves away from your long straddle strike (126) 2) IV (implied voatility) contracts thereby causing your long options to lose more than the shorts gain. This is a neutral strategy. You want the underlying to remain in striking distance of the short strike. Do you think that's likely for the next 2-1/2 months in the current market environment?
Thanks for the answers.. Actually I am a she.. I did paper trade it, you are correct. Cursory glances, and hey.. this is doing nicely. No fear, no emotion. So now. I opened a position (2 lots). Risk management, max loss $580, however, I plan to close the pos. when I am down 50 % of that. Target 75% of profit.. i.e I am not planning on keeping till the bitter end. However, I will take some discretionary inputs. Taking into considerations, VIX and general market conditions. Basically as long as my risk graph shows acceptable probability I can maintain the pos. What say you, please any advice is welcome..
This is a neutral strategy. You want the underlying to remain in striking distance of the short strike. Do you think that's likely for the next 2-1/2 months in the current market environment? Ha... No, I expect the market to go down, up and sideways.. However, with all this volatility, if you look at where SPY was on 6/25 . It was about the same.. The way I see it is, the position moves very slowly initially, it has a wide BEP. Am I seeing this correctly? I took on this pos. with the vix at 23, which is hopefully somewhat neutral?
I know most of the time TOS recommends you close the entire trade at the same time however (If you think the market will gyrate for some time yet) one option is to close which ever diagonal meets your profit target then let the market change direction and close the other half when"it"becomes profitable. Obviously timing and market cooperation is essential! I'm assuming you have traded vertical's and calendars and are comfortable with how the greeks affect them. DD's, straddle/strangle etc are combinations and can be tricky to manage. GL
Thanks RR.. Yes, I have traded them (vert. and calendars) with varying success.. I might do that.. close one end and then the other.. What would you say are the other adjustments I could make.. should I try to stay close to delta neutral and how would I adjust it ? By going unbalanced? Thanks