Correct me if I'm wrong. While doing some math and live trades with long/short front/back month futures options, that was the way of my thinking and trading path:
1. Let's short naked strangles (yeah, want to cut both sides, and don't like directions in trading). Open 1 month DTE strangle, wait for its expiration, collected premium turned to realized PL, cool. Till the moment of sharp move, where both increased unrealized PL and margin requirements hit your account to death.
2. OK, let's add some protection. Don't like verticals in the same month, so try diagonals: short front month, long back month, then after some research long back-back month
i.e. short Sep strangle, long Nov strangle.
Important note: I choose strikes of different months only by 'same premium' basis (no 'same delta' or 'same vega' or 'same strike' rules). It's zero total PL at the initial, and the main goal to let front month expired wortless, and back month close with some profit after theta decay.
This model plays well, history says it can make some profits on expirations. But... sharp moves happen inside the trading time window (1 month DTE, remember), and though they're not that hard as naked (protection works), still they make some pain of unrealized PL and margin. So why not to turn this on my side?
3. Let's reverse the logic of #2 and long front month and short back month strangles. Let's go closer to ATM, in order to grab volatile moves. Is there any edge? History says that there're moves in UL pretty often that would rocket your front month options while back ones grow less. Usually the difference is big enough and (tu-dum!) there's almost no margin requirements accorging to SPAN. I mean margin is mere $50-100 for this setups.
There're some month of total standstill, and yes, I have to drop all long side and grab remains of short side, that would be net loss, but profits of other months with the moves are much higher.
So any pros and cons of that approach?
Any input would be appreciated.
1. Let's short naked strangles (yeah, want to cut both sides, and don't like directions in trading). Open 1 month DTE strangle, wait for its expiration, collected premium turned to realized PL, cool. Till the moment of sharp move, where both increased unrealized PL and margin requirements hit your account to death.
2. OK, let's add some protection. Don't like verticals in the same month, so try diagonals: short front month, long back month, then after some research long back-back month
i.e. short Sep strangle, long Nov strangle. Important note: I choose strikes of different months only by 'same premium' basis (no 'same delta' or 'same vega' or 'same strike' rules). It's zero total PL at the initial, and the main goal to let front month expired wortless, and back month close with some profit after theta decay.
This model plays well, history says it can make some profits on expirations. But... sharp moves happen inside the trading time window (1 month DTE, remember), and though they're not that hard as naked (protection works), still they make some pain of unrealized PL and margin. So why not to turn this on my side?
3. Let's reverse the logic of #2 and long front month and short back month strangles. Let's go closer to ATM, in order to grab volatile moves. Is there any edge? History says that there're moves in UL pretty often that would rocket your front month options while back ones grow less. Usually the difference is big enough and (tu-dum!) there's almost no margin requirements accorging to SPAN. I mean margin is mere $50-100 for this setups.
There're some month of total standstill, and yes, I have to drop all long side and grab remains of short side, that would be net loss, but profits of other months with the moves are much higher.
So any pros and cons of that approach?
Any input would be appreciated.
