My option trades

Quote from falconview:

Okay Don! Sat on the thinking throne in the bathroom since market is closed. Picked up on the selling bit with my thinking cap on.

Couldn´t do it, because I only had one contract on each side for my trial effort. But in my thinking throne room, I figured it out.
You sell to adjust as the premium balloon, or volatility has hit that side and you are profiting from volatility. Okaaaay! Got it thankyou.

Soon as the market hits an quilibrium here, will put on a STRADDLE with five options each side. Then I would have some way to adjust to take profit out of the straddle.

Let me see, these straddles are roughly $225 each side and that is $450 for one contract straddle. So 5 contracts each side would be 10 x $225, which would be $2250. Can handle that and it will give me something to sell down in adjustment. Okay got that!

Since I only want the long straddle for one week, one strike move should be possible, which should return .40 to .50 cents, which is my goal. Once I get through learning the mechanics and nuances, will increase bet size. Sounds good!
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I have no idea how you're arriving at a $0.50 move in a straddle on SPY (or Q?) for a one dollar move in the underlying. Your comment implies an initial delta of approx. 45. The delta position is going to move 10-15 cents, but you'll decay. Don't take this personally, but to arrive at a $0.50 move tells me you have no business trading these. FWIW, the vol-line would have to rise 800-1000bp on the day you bought it to hit a 50-cent move, or a 1.50 move in the underlying. At minimum.

Also, please be specific with trades; strikes, duration, premium or vol%.

I would recommend selling wings into your straddles (gamma-trade) as the opportunity presents, rather than leaving the straddle asymmetrical. Say you're long the 130 SPY straddle and spot trades to 131... you sell a pair of 33C and go long a 35C. You've flied-off the upside and reduced your gamma.

Regardless, these are bets on vol. Gamma is declining in exposure as you trade away from the strike as gamma peaks atm... so these are first and foremost bets on volatility. Gains from gamma can compensate for vega losses, but you need realized vol to allow entries on those wing shorts.

What you're trying to do is probably the most difficult $ earned by the upstairs trader.
 
Thanks Atticus

I realized I´m confused. Reading up on it doesn´t seem to help either.

I don´t get what you are talking about though. If I have a straddle and I sell a wing. ( going to have to look that up on google ) How do I sell a wing, if I do not have an offset long? I even ran across my queries of last FALL on this same subject.

As to prices, you are right. Something fishy there, I´m not doing right. Though I see if the index moves a strike, I get a .40 cent to .60 cent move in the straddle premium, at least when I look at the option chain strike bid and ask prices. Just looked again, to make sure. Or would I only get half of that? Guess that would be .20 cents then? It takes roughly 14 cents in commission with TOS I believe to pay for it.

I´m going to have to chew on what you say, because I am not at all clear about it.
 
Atticus

I thought I had a handle on it, by buying when you get a move, say one strike to adjust the delta. If the move reversed, I would then have more options to sell on the return move.
But then Don burst my bubble, by telling me I have to sell, to adjust the delta, ( he didn´t say what, and I think I have it figured out what he was talking about ) Not buying is something else I think? ! I thought if I adjusted the deltas I would accumulate an OTM option, by buying, which would be cheap and if the index reversed, it would gain value along with the standard value of the straddle, but if it did not reverse ( the index ), then I just let it rot away untended. as it would be just insurance and not required. Go with the two strike move and close the straddle then. Which should be profitable now. I´m dealing in 60 to 90 day options.

That was the way I was planning. But Don says to reduce the number of options ( sell some ) when adjusting, which sort of makes sense, as they would be inflated volatility premiums.

Now you throw in wings and I am going to have to read up on what that means.
 
Quote from falconview:

Thanks Atticus

I realized I´m confused. Reading up on it doesn´t seem to help either.

I don´t get what you are talking about though. If I have a straddle and I sell a wing. ( going to have to look that up on google ) How do I sell a wing, if I do not have an offset long? I even ran across my queries of last FALL on this same subject.

As to prices, you are right. Something fishy there, I´m not doing right. Though I see if the index moves a strike, I get a .40 cent to .60 cent move in the straddle premium, at least when I look at the option chain strike bid and ask prices. Just looked again, to make sure. Or would I only get half of that? Guess that would be .20 cents then? It takes roughly 14 cents in commission with TOS I believe to pay for it.

I´m going to have to chew on what you say, because I am not at all clear about it.
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The SPY Mar17 137 and 138 straddles are $0.13 cents apart (bid prices). 10-trading days to exp. The Mar09 are $0.14 cents apart. The 137s are $0.25 ITM and the 138s are $1.25 ITM. You're looking at a $0.13 move tomorrow on the 37 straddle if SPYs drop a point. That assumes flat vol and zero decay. In reality it'd move a nickel.

I know you're motivated, but it's not enough. You need to look along the strip (vertically) at prices so that you aren't BSing yourself about the potential. Worse, you're motivated to trade straddles in a vol-skew. That's the bare-minimum to show you're not suicidal.

STF-away from index ETFs. Trade options on shares under $100 and under 1.00 beta. Trade one-lots, no paper-trading. XOM is liquid and vol is low.

EDIT: I misunderstood that you're not in the front-month. The advice stands, and there is minimal gamma in the 60-90D duration. I am confused further as you're stating that the straddle is 4.50 handles? The May is 8.00.

Are you talking Qs or SPY? I don't read every page of these threads and it would help if I knew WTF you were looking at. You're a bit verbose but leave out critical details.:D
 
I´m trading the QQQ.

I´m holding a trial long straddle this week. Cash.

1 May QQQ -65- straddle @ $4.20/

I had planned to adjust the delta by buying an OTM. Then if the market reversed I would have extra to sell. ( I read that someplace ) Anyway by adding long options on the swings, sort of buy low and sell them higher. If there was enough of it to make it worthwhile to close the straddle and all the extras, do so. If I was wrong and there would be no swing reversal, then just let the OTM die, expire or whatever. Get my profit from going further one directional with the Straddle.
I read about this strategy someplace on the internet, but haven´t been able to find the url again.

Anyway, Don chimes in and says I am doing it wrong. When adjusting I need to sell contracts I´m holding. Which I dont´have enough in this particular straddle, as I did it to learn how to adjust delta and figure out what gamma would tell me. ( so far nothing at all ) I thought gamma would tell me when the trend had turned. But so far, nothing, which gybes with what you say about third month out having little gamma.
 
Quote from falconview:

I´m trading the QQQ.

I´m holding a trial long straddle this week. Cash.

1 May QQQ -65- straddle @ $4.20/

I had planned to adjust the delta by buying an OTM. Then if the market reversed I would have extra to sell. ( I read that someplace ) Anyway by adding long options on the swings, sort of buy low and sell them higher. If there was enough of it to make it worthwhile to close the straddle and all the extras, do so. If I was wrong and there would be no swing reversal, then just let the OTM die, expire or whatever. Get my profit from going further one directional with the Straddle.
I read about this strategy someplace on the internet, but haven´t been able to find the url again.

Anyway, Don chimes in and says I am doing it wrong. When adjusting I need to sell contracts I´m holding. Which I dont´have enough in this particular straddle, as I did it to learn how to adjust delta and figure out what gamma would tell me. ( so far nothing at all ) I thought gamma would tell me when the trend had turned. But so far, nothing, which gybes with what you say about third month out having little gamma.
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> duration > vega < gamma

It seems like you're trying to run before you can walk. The safest plays are often the most complex (flies, 2x diagonals) as they're often have very little sensitivity to gamma, regardless of movement in the underlying. A discrete box (1-tick strike) is the most limited (exposure) of any position.

"Easy to price, hard to hedge" Another adage relates to single option positions being unforgiving. The issue is achieving enough sophistication (and surviving long enough) to limit your per contract risk.
 
Here's my experience with straddles:

Unless the market hasn't anticipated anything other-worldly, owning them only eats you up slowly- theta decays fast for ATM options because they are the ones with the most extrinsic value. Sure you are long gamma but the profits of gamma are only realized if the stock moves a good amount. But the effects of theta are quite immediate- from days to sometimes within hours (around expiration)

So my 2 cents (from a newbie to another) is to buy some verticals if you're betting directionally- your profit is capped but your losses won't rack up as fast either if the underlying just decides to chill (the short position will gain some while your long bleeds away). Besides, if it heads sharply in the other direction, you close the long and (assuming you have enough margin), the short will make up some of the losses (maybe even turn a tiny profit).

As for trading those big moves, there really is no telling (unless you rely on chart patterns in which case your bias towards a particular kind of move can easily be adjusted to make you into believing anything). A straddle usually loses with earnings and FDA events too- unless of course you're on to something like VVUS which our dear member ForexForex seems to have capitalized on.
 
Quote from falconview:

I´m trading the QQQ.

I´m holding a trial long straddle this week. Cash.

1 May QQQ -65- straddle @ $4.20/

I had planned to adjust the delta by buying an OTM. Then if the market reversed I would have extra to sell. ( I read that someplace ) Anyway by adding long options on the swings, sort of buy low and sell them higher. If there was enough of it to make it worthwhile to close the straddle and all the extras, do so. If I was wrong and there would be no swing reversal, then just let the OTM die, expire or whatever. Get my profit from going further one directional with the Straddle.
I read about this strategy someplace on the internet, but haven´t been able to find the url again.

Anyway, Don chimes in and says I am doing it wrong. When adjusting I need to sell contracts I´m holding. Which I dont´have enough in this particular straddle, as I did it to learn how to adjust delta and figure out what gamma would tell me. ( so far nothing at all ) I thought gamma would tell me when the trend had turned. But so far, nothing, which gybes with what you say about third month out having little gamma.
More...

Never said sell contracts you're holding. You sell OTM puts ro calls to adjust delta, that's all.

Don
 
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