Directional Trading and Options and Straddles

[smallfil]

Absolutely. Any strategy (including our straddles) can produce some occasional big winners. What matters is what is the overall return and what is the risk.

Our straddle strategy is producing 5% average return including the losers, and it rarely loses more than 7-10% with 80% winning ratio. Can you say the same about any directional trading strategy?

Since, you have an 80% win rate and only a 5% return on average, what happens when you have a couple of large losses because a straddle takes two positions a once? So, it costs you more for a single trade compared to a directional options trade? Wouldn't a couple of large losses wipe out any small gains you made? It is not the winning percentage that matters but, your edge. What is your win/loss ratio? How large are your wins vs how large are your losses? If you have a 2/1 win loss ratio and say 40-60% winning percentage on directional option trades, you should be fine.

 

[Kim Klaiman]

Since, you have an 80% win rate and only a 5% return on average, what happens when you have a couple of large losses because a straddle takes two positions a once? So, it costs you more for a single trade compared to a directional options trade? Wouldn't a couple of large losses wipe out any small gains you made? It is not the winning percentage that matters but, your edge. What is your win/loss ratio? How large are your wins vs how large are your losses? If you have a 2/1 win loss ratio and say 40-60% winning percentage on directional option trades, you should be fine.

Our largest loss in 2018 was 11%. In 2017 we had two losses in 20-25% range, the rest were single digit losers. This strategy has very low risk. Average winner is around 8-10% and average loser around the same. Since winning ratio is around 80%, the strategy performs very well.

We don't do any directional trading. Just don't need to take all the added risk since our non directional strategies perform so well.

 

[RedEyeFly]

The trick with long gamma is to kill the trade/hedge at extreme moments (or inflection points) on the vol curve or vol environment. It’s not easy, but very possible to make money always being long vol, even in a low vol environment.