Delta neutral or directionality: which one do you pick?

These are all viable strategies and I'm guessing most of you guys are trading stocks which I guess really opens up you options. I've always strictly traded futures just because it suits me but I am very limited to how often I can apply my favorite short strangle strategy because I really can only trade options on 4 or 5 different instruments. I'd imagine if I started watching stocks I would have many more chances to apply my most effective strategy instead of always having to adapt the strategy to the instrument.

How many stocks do you all watch and are you trying to find specific patterns that best suit your strategy i.e. range or volatile? Or do most of you just follow the same few stocks and apply the strategy when it is most suitable?
 
Quote from riskaddict:

These are all viable strategies and I'm guessing most of you guys are trading stocks which I guess really opens up you options. I've always strictly traded futures just because it suits me but I am very limited to how often I can apply my favorite short strangle strategy because I really can only trade options on 4 or 5 different instruments. I'd imagine if I started watching stocks I would have many more chances to apply my most effective strategy instead of always having to adapt the strategy to the instrument.

How many stocks do you all watch and are you trying to find specific patterns that best suit your strategy i.e. range or volatile? Or do most of you just follow the same few stocks and apply the strategy when it is most suitable?
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There is very little skew in single-names, so a short strangle isn't prudent. Any short strangle can be replicated cheaply (in vola and $) in a short gamma condor. Flies can be costly (edge loss) in comms where there is a vol-smirk; as in ags where the up and out strikes are bid well beyond ATM. Flies can be costly due to the OTM call wing of the fly.

Sell strangles in comms and trade flies and condors in stocks. Index and ETFs are similar to comms.
 
Quote from cdcaveman:

How do you diffuse jumps.....tail risk
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Tails only hurt to the extent that if my buy or sell stop into the underlying is triggered and then reverses I get stopped out of that underlying position if the price enters back into the pattern. In oil this can happen A LOT! But by using the underlying and not tinkering with the strangle the gain on the strangle often makes up for the loss on the outright within a day or two.

The underlying pattern is paramount and tails tend to happen before a real or failed breakout happens so usually by then I'm out of the strangle. In a given month I'm probably only in these strangles for 10 to 15 days with oil if you look at wheat and sugar and corn and cocoa for the last year the ranges and breakout points have been so obvious you can stay in the strategy which much less tinkering. Of course everything has changed in the last few weeks :(
 
Quote from atticus:

There is very little skew in single-names, so a short strangle isn't prudent. Any short strangle can be replicated cheaply (in vola and $) in a short gamma condor. Flies can be costly (edge loss) in comms where there is a vol-smirk; as in ags where the up and out strikes are bid well beyond ATM. Flies can be costly due to the OTM call wing of the fly.

Sell strangles in comms and trade flies and condors in stocks. Index and ETFs are similar to comms.
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Thanks now I have some homework to keep me busy!
 
Quote from Put_Master:

While I assume (hope) the stock won't drop below my strike, I don't feel restrained, restricted, or limited to that strike.
Unlike a leveraged spread trader, I can allow the stock to trade up to 20% below my strike, and not think twice about it.
While I'm usually leveraged, its to a reasonable degree.
And I'm "diversified" enough, that if 75 - 80% of my stocks get put to me, with the remaining 20 - 25% expiring, I won't even be on margin.

I have no problem owning my stocks at my strikes, selling covered calls, and collecting dividends..... until they recover or become neutralized.
But then again, I'm picky about the stocks and strikes I select.
Thus, while I'm classified as a directional trader, I feel more like a "range trader", with a very wide 2 sided range to work in.... with one side being unlimited, and the other range being about 20% below my strike.

On the other hand, if a put selling trader like me is not as diversified, and is using excessive leverage, and has double my % return goals, and is not as picky about their stock and strike selection,........ then ignore everything I stated above.
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You're long. At no point can your position flip delta. Diversification may reduce your beta, but each position increases your notional risk.
 
Quote from atticus:

You're long. At no point can your position flip delta. Diversification may reduce your beta, but each position increases your notional risk.
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The only time I consider delta, is when I'm considering opening or closing a position,... as i don't hedge my positions.
While each position increases my notional risk, I don't diversify to reduce my beta.
I diversify mostly to reduce my chances of actually being on and paying daily margin fees, if a bad market occurs.
That being, hopefully a small % of the stocks will remain above their strike and expire.
That's part of the reason my otm safety cushions range from 8 - 30%.
And of course, I diversify to reduce the chance of being concentrated in the wrong sector(s) at the wrong time.

Unlike a leveraged spread trader, I don't fear my stocks being 0.01 - 20% ITM on expy.
My strategy is set up to "potentially" be long, and then work for recovery/neutralization.
However, sometimes "hope" becomes a poor strategy, and losses do need to be realized.... (NTES???).
(Sorry for getting off topic of the thread.)
 
Quote from Put_Master:

The only time I consider delta, is when I'm considering opening or closing a position,... as i don't hedge my positions.
While each position increases my notional risk, I don't diversify to reduce my beta.
I diversify mostly to reduce my chances of actually being on and paying daily margin fees, if a bad market occurs.
That being, hopefully a small % of the stocks will remain above their strike and expire.
That's part of the reason my otm safety cushions range from 8 - 30%.
And of course, I diversify to reduce the chance of being concentrated in the wrong sector(s) at the wrong time.

Unlike a leveraged spread trader, I don't fear my stocks being 0.01 - 20% ITM on expy.
My strategy is set up to "potentially" be long, and then work for recovery/neutralization.
However, sometimes "hope" becomes a poor strategy, and losses do need to be realized.... (NTES???).
(Sorry for getting off topic of the thread.)
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Your delta position exits whether you choose to consider it or not. The "safety cushion" ignores the R/R. How can you "neutralize" if you don't hedge?
 
Quote from Put_Master:

The only time I consider delta, is when I'm considering opening or closing a position,... as i don't hedge my positions.
While each position increases my notional risk, I don't diversify to reduce my beta.
I diversify mostly to reduce my chances of actually being on and paying daily margin fees, if a bad market occurs.
That being, hopefully a small % of the stocks will remain above their strike and expire.
That's part of the reason my otm safety cushions range from 8 - 30%.
And of course, I diversify to reduce the chance of being concentrated in the wrong sector(s) at the wrong time.

Unlike a leveraged spread trader, I don't fear my stocks being 0.01 - 20% ITM on expy.
My strategy is set up to "potentially" be long, and then work for recovery/neutralization.
However, sometimes "hope" becomes a poor strategy, and losses do need to be realized.... (NTES???).
(Sorry for getting off topic of the thread.)
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There are no margin fees for selling puts.

Everyone is passed the spread trader argument.

Selling calls against an ITM put position is a weak form of hedging.
 
Quote from atticus:

<<< Your delta position exits whether you choose to consider it or not. >>>

I know.
I'm just saying i don't concern myself with it, anymore than I'm concerned about daily mild fluctuations in a stock that is otm, with several weeks til expy..... other than when I'm considering opening or closing a position, as I then need to consider the opening or closing credit for the GTC order on a fluctuating stock.
Or am I missing something I should be considering?


<<< The "safety cushion" ignores the R/R. How can you "neutralize" if you don't hedge? >>>

I only consider hedging/neutralizing the trade if/when things go bad.
That means selecting a strike for a covered call either at or "below" my strike.
I try to set up my initial trade to minimize the chances that it will need to be neutralized later.
That being, instead of overly focusing on "potential" for % return of a trade, I try to maximize the "probability' of the trade being successful.

Before I initiate any trade, I think about it's "potential for recovery", in case it drops on me.
Recovery is my idea of neutralization.
My idea of hedging, is the fundamental and technical analysis I do BEFORE I consider initiating a trade.
By focusing on a trades "potential for recovery" BEFORE I initiate the trade, I'm less likely to have issues with it AFTER i intiate the trade.


It's the old argument of "potential vs probability".
That being, would you rather eat well or sleep well?
Only once in a while do I attempt to feast at the buffet.

As for my R/R, I don't consider R/R in a vacuum.
I consider it in the "context" of the PROBABILITY of the trade being successful.
For me it's R/R/P

Going out for a short while. Read you later.
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