most assuredly. But there is always one more mole on the WacAMole board that thinks they have the new angle.
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Martingale With Strangles
- Thread starter DallasSteve
- Start date
most assuredly. But there is always one more mole on the WacAMole board that thinks they have the new angle.
The problem with martingales in general (and OTM put options for that matter) is that they don't fundamentally increase your earnings, there's just no alpha there.
They just move around risk in such a way that you think you're winning... until your trade blows up in your face.
I think your strangle will keep your strategy from blowing up in your face, but I think it'll prove unprofitable. Only one way to find out, though.
They just move around risk in such a way that you think you're winning... until your trade blows up in your face.
I think your strangle will keep your strategy from blowing up in your face, but I think it'll prove unprofitable. Only one way to find out, though.
Quote from heech:
The problem with martingales in general (and OTM put options for that matter) is that they don't fundamentally increase your earnings, there's just no alpha there.
You mention OTM put options. Is there a reason they would be different than OTM call options in terms of profitability? Also do you think that near-the-money options in a strangle system would be profitable (ignoring my Martingale trade) or does the premium (and commission and spread) eat up your profit on average?
Steve
so if i understand this correctly, using numbers, some are assumed, your plan is as follows:
-qqqq at 30
-trade size:100
-bet every: 5 (based on the qqqq range)
-max: 15-45 (30-5*3bets, 30+5*3)
- buy 8x otm(15P,45C) strangle, adjust to remove garbage otm contracts -> buy 8x otm(23P,33C) for $200
- buy 100 shares of qqqq for $3000
case 1:
1) if qqqq drops to $25, buy 100 shares for $2500
2) if qqqq drops to $20, buy 200 share for $4000
3) if qqqq drops to $15, buy 400 shares for $6000.
So $15500 for a $12000, plus gains from the 8x 23P.
case 2:
1) qqqq drops to $26, and remains flat.
so you lose $400 from qqqq, and $200 from the strangles as they expire worthless.
Is this correct for the worst cases? of course 5 as martingale bet is probably too wide of a gap to doubledown for qqqq etc...but i mean is the concept about right?
You dont need to buy the calls, only puts in the above examples, but based on your explanation you basically wanted to leave the strangle intact and scalp around in the middle for profit in both directions, and if your directional bet is wrong, you apply martingale
-qqqq at 30
-trade size:100
-bet every: 5 (based on the qqqq range)
-max: 15-45 (30-5*3bets, 30+5*3)
- buy 8x otm(15P,45C) strangle, adjust to remove garbage otm contracts -> buy 8x otm(23P,33C) for $200
- buy 100 shares of qqqq for $3000
case 1:
1) if qqqq drops to $25, buy 100 shares for $2500
2) if qqqq drops to $20, buy 200 share for $4000
3) if qqqq drops to $15, buy 400 shares for $6000.
So $15500 for a $12000, plus gains from the 8x 23P.
case 2:
1) qqqq drops to $26, and remains flat.
so you lose $400 from qqqq, and $200 from the strangles as they expire worthless.
Is this correct for the worst cases? of course 5 as martingale bet is probably too wide of a gap to doubledown for qqqq etc...but i mean is the concept about right?
You dont need to buy the calls, only puts in the above examples, but based on your explanation you basically wanted to leave the strangle intact and scalp around in the middle for profit in both directions, and if your directional bet is wrong, you apply martingale
Quote from newguy05:
You dont need to buy the calls, only puts in the above examples, but based on your explanation you basically wanted to leave the strangle intact and scalp around in the middle for profit in both directions, and if your directional bet is wrong, you apply martingale
newguy
You're summary at the end is basically what I'm studying. One difference would be, as you point out, to trade QQQQ either direction so I want to hold both a put and a call. If you're holding a strangle going short is no more risky than going long.
Plus, I would set the entry points on QQQQ much smaller. I'm thinking about 20-30 cents with the strangle set about $1 OTM on each side. I might widen the trade entry points to around 50 cents when I get to the third entry. I probably wouldn't enter more than three on one side before I've hit the strangle and risk has maxed out.
If you want to hold longer swings, like $5 steps you are going to feel more pain when the trades go against you. Plus you would need to hold those options a long time or they would likely never be touched. It takes weeks or (probably) months for QQQQ to move from 30 to 15 or 45 (in your example).
I've been running a paper trade account on IB for about 2 weeks and the results are interesting. The Martingale is probably about breakeven so far, but the strangle is making about $600 on 8 puts and 8 calls (at 26 AND 27). They expire Friday and I am going to start a new test. Maybe the Martingales will make a profit when the options are flat (or down) and vice versa.
Steve
PS: I may also switch to using a breakout system for the first entry. I've never been comfortable with breakouts - I always feel like I'm overpaying. But with the strangle in place a breakout system doesn't bother me as much.
Quote from DallasSteve:
Plus, I would set the entry points on QQQQ much smaller. I'm thinking about 20-30 cents with the strangle set about $1 OTM on each side. I might widen the trade entry points to around 50 cents when I get to the third entry. I probably wouldn't enter more than three on one side before I've hit the strangle and risk has maxed out.
If you want to hold longer swings, like $5 steps you are going to feel more pain when the trades go against you. Plus you would need to hold those options a long time or they would likely never be touched. It takes weeks or (probably) months for QQQQ to move from 30 to 15 or 45 (in your example).
5 for the doubledown is definitely exaggerated on my part. But if you keep the strangle in such narrow range around atm, you will have a much higher premium to pay, in addition it is much more likely for the qqqq to hit the stop loss.
I guess it depends on your timeframe and style, if you are doing daytrading only then i guess it make sense. Be interesting to backtest this with different doubledown values.