Another option trading strategy

[ggelitetrader000]

I stopped reading as soon as you failed to mention implied volatility in buying a straddle. if you don't know what implied volatility is, its run up to earnings and collapse afterwards then stop trading and start reading.

ok, finally got a time to read indeed the IV is a big component in the option price and it does go down big time after earning. Did some observation too. So the straddle strategy has not been working great for me but at least did not lose.
I am contemplating about buying straddle several days before (not just a day before as I have been doing before) while IV is still reasonable low and then run up to earning day and sell it just before earning to see it will work.

 

[El OchoCinco]

ok, finally got a time to read indeed the IV is a big component in the option price and it does go down big time after earning. Did some observation too. So the straddle strategy has not been working great for me but at least did not lose.
I am contemplating about buying straddle several days before (not just a day before as I have been doing before) while IV is still reasonable low and then run up to earning day and sell it just before earning to see it will work.

You need to study this further to see when IV runs up, it rarely is a few days before because the whole world knows the earnings is coming and it is current. Vols tends to bottom out in general midway between quarters but then again you have to study the vol pattern of the options on the underlying stock to see what really is the story.

 

[ggelitetrader000]

You need to study this further to see when IV runs up, it rarely is a few days before because the whole world knows the earnings is coming and it is current. Vols tends to bottom out in general midway between quarters but then again you have to study the vol pattern of the options on the underlying stock to see what really is the story.

Yes agree, I need to gather data and see pattern on large amount of data gathering. I am thinking to use a etrade API programming interface to see if it possible to collect various statistics over the period of time to drive conclusion. The volatility trading book had a great deal of information and i got generic idea but for the more deeper specifics, there are some terms I am not familiar or experienced with for which I'd probably need to catch up.

 

[LM3886]

However, if you simply avoid trading during certain negative general market conditions, you can make money.

Sorry for digging up this old post, but I have a few questions. What type of general market conditions do you monitor? Can you please provide an example? Are they regarding the overall market or individual underlying stocks? Thanks.

 

[drcha]

The overall market. I often use Otar's "hurricane warning" described here: http://retirementoptimizer.com/. However, you don't need anything that fancy. You can just use a 10-month MA if you want. You'll make less in bullish times but will lose MUCH less in bear markets. For weekly options, it's a good idea to use something tighter--I like the 4-wk MA. I think a lot of different rules will work. Choosing one and using it is likely more important than exactly what the rule is. Make sense?

 

[drcha]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

 

[misterkel]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

I find option spreads on heavily traded stocks are illusory - eg - you can usually hit pretty close to the mid-point, but the real bid-ask spread is hidden by the MM's. I guess they hope some ding-dong will hit the posted price.

 

[sle]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

I think the fact that single names are volatile and are subject to nasty surprises is the reason to trade them

 

[tradermaji]

Yes agree, I need to gather data and see pattern on large amount of data gathering. I am thinking to use a etrade API programming interface to see if it possible to collect various statistics over the period of time to drive conclusion. The volatility trading book had a great deal of information and i got generic idea but for the more deeper specifics, there are some terms I am not familiar or experienced with for which I'd probably need to catch up.

I think the spike in IVs are shown in many sites including Options Chameleon.
Here is an example using EBay... https://marketchameleon.com/Overview/EBAY/IV/


Or maybe I am misunderstanding your requirements... in that case, please ignore the post.

 

[ironchef]

I think the fact that single names are volatile and are subject to nasty surprises is the reason to trade them