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Seeking advice on writing (and covering) short options
- Thread starter noregrets
- Start date
Quote from Twinsen:
Do you buy long term longs at the money or out of the money? And sell shorts closer to money? Or your longs are in the money?
I asked about similar strategy here
http://elitetrader.com/vb/showthread.php?s=&threadid=260219
Buying itm strangle and selling atm short term strangle. But looks like it is not good. Well. Does your strategy differ from it?
You still don't get that the itm strangle is equivalent to the otm (same-strikes) strangle? The difference in the prem (itm vs. otm) is the strike-width.
100-105 "itm" strangle at 8.00 (inside strangle)
100-105 "otm" strangle at 3.00 (outside strangle)
You have a $0.10 arb (less rates) if you can sell the inside at 8.05 and buy the outside at 2.95. It's a box arbitrage.
One thing I'll never understand about this site is the proclivity of some people to ask questions and ignore the answers.
Quote from atticus:
You still don't get that the itm strangle is equivalent to the otm (same-strikes) strangle? The difference in the prem (itm vs. otm) is the strike-width.
100-105 "itm" strangle at 8.00 (inside strangle)
100-105 "otm" strangle at 3.00 (outside strangle)
You have a $0.10 arb (less rates) if you can sell the inside at 8.05 and buy the outside at 2.95. It's a box arbitrage.
One thing I'll never understand about this site is the proclivity of some people to ask questions and ignore the answers.
Lolol... I read the other thread and I think Twinsen is a few levels from discussing box arbitrage.
Twinsen - before atticus beats you to a pulp you need to brush up on your terminology:
http://www.investopedia.com/terms/s/strangle.asp
http://www.investopedia.com/terms/s/straddle.asp
It's no secret that I know less about trading options than anyone, anywhere at anytime.
Not suprisingly I have NO IDEA why trading "low probability" strategies like strangles and straddles is so popular with so many traders.
A better name for them should be the "HOPE...IF...MIGHT" strategies.
You HOPE there is a big movement, and IF there is, you MIGHT profit.... if you don't run out of "time".
I don't see the attraction of such a "low probability" strategy(s).
However, they do sound like they have fantastic potential..... on paper.
HOPE... IF... MIGHT.
I call them the "HIM" for short.
Not suprisingly I have NO IDEA why trading "low probability" strategies like strangles and straddles is so popular with so many traders.
A better name for them should be the "HOPE...IF...MIGHT" strategies.
You HOPE there is a big movement, and IF there is, you MIGHT profit.... if you don't run out of "time".
I don't see the attraction of such a "low probability" strategy(s).
However, they do sound like they have fantastic potential..... on paper.
HOPE... IF... MIGHT.
I call them the "HIM" for short.
Strangler, yes you are right. I am far away from such things)) So you buy further otm 3 longs and sell closer to money 2 shorts weeklys. If your shorts are about to go in the money do you buy them back and sell new shorts further atm? How wide your spreads (longs-shorts)?
I was testing calendars with more longs but did not like it. To make money on additional longs stock have to go too far (wide break even points) even if I was buying two times more longs than shorts. However I tested it on weeklys. Longs 2 weeks long, shorts 1 week long. That's why longs were decaying too fast especially if there were many and stock not volatile like qqq, iwm.
Okay atticus let it be the same things. But if for this strategy I buy otm strikes, I cannot sell further otm strikes because they just do not have any value (as per plan to sell weeklys). And if I sell closer to money strikes it will be credit spreads, instead of debit spreads. You will tell me debit spreads and credit spreads are the box okay. Though the latter requires margin. My thoughts were if itm strangle will not lose money I could sell shorts against it few times and then sell the long strangle for the same value I bought it. Like to rent a money printing press.
In any case I abandoned this strategy because I already paper traded it and itm legs do not retain the value equally. One losing more, other does not gain enough.
Put_Master, money are coming from selling premium here, not from strangle/straddle. I found your thread where you sell CWT and TLT but they are not good for trading, spreads like 10 cents and no any value even at the money.
I was testing calendars with more longs but did not like it. To make money on additional longs stock have to go too far (wide break even points) even if I was buying two times more longs than shorts. However I tested it on weeklys. Longs 2 weeks long, shorts 1 week long. That's why longs were decaying too fast especially if there were many and stock not volatile like qqq, iwm.
Okay atticus let it be the same things. But if for this strategy I buy otm strikes, I cannot sell further otm strikes because they just do not have any value (as per plan to sell weeklys). And if I sell closer to money strikes it will be credit spreads, instead of debit spreads. You will tell me debit spreads and credit spreads are the box okay. Though the latter requires margin. My thoughts were if itm strangle will not lose money I could sell shorts against it few times and then sell the long strangle for the same value I bought it. Like to rent a money printing press.
In any case I abandoned this strategy because I already paper traded it and itm legs do not retain the value equally. One losing more, other does not gain enough.
Put_Master, money are coming from selling premium here, not from strangle/straddle. I found your thread where you sell CWT and TLT but they are not good for trading, spreads like 10 cents and no any value even at the money.
<<< Put_Master, money are coming from selling premium here, not from strangle/straddle. >>>
I was actually responding to the Strangler"s post, of his linking to the definitions of a strangle and straddle.
<<< I found your thread where you sell CWT and TLT but they are not good for trading, spreads like 10 cents and no any value even at the money. >>>
That was not my thread or my posts.
That thread and those posts belongs to "oldnemesis".
And I have yet to observe even one of his trades, that I didn't think was nuts.
Although, to be fair, there were a few that I thought were merely rediculous.
I was actually responding to the Strangler"s post, of his linking to the definitions of a strangle and straddle.
<<< I found your thread where you sell CWT and TLT but they are not good for trading, spreads like 10 cents and no any value even at the money. >>>
That was not my thread or my posts.
That thread and those posts belongs to "oldnemesis".
And I have yet to observe even one of his trades, that I didn't think was nuts.
Although, to be fair, there were a few that I thought were merely rediculous.
Quote from Twinsen:
Okay atticus let it be the same things. But if for this strategy I buy otm strikes, I cannot sell further otm strikes because they just do not have any value (as per plan to sell weeklys). And if I sell closer to money strikes it will be credit spreads, instead of debit spreads. You will tell me debit spreads and credit spreads are the box okay. Though the latter requires margin. My thoughts were if itm strangle will not lose money I could sell shorts against it few times and then sell the long strangle for the same value I bought it. Like to rent a money printing press.
In any case I abandoned this strategy because I already paper traded it and itm legs do not retain the value equally. One losing more, other does not gain enough.
You're wrong, but luckily it's not going to cost you much.
You realize that options cost money for a reason?Quote from Put_Master:
It's no secret that I know less about trading options than anyone, anywhere at anytime.
Not suprisingly I have NO IDEA why trading "low probability" strategies like strangles and straddles is so popular with so many traders.
A better name for them should be the "HOPE...IF...MIGHT" strategies.
You HOPE there is a big movement, and IF there is, you MIGHT profit.... if you don't run out of "time".
I don't see the attraction of such a "low probability" strategy(s).
However, they do sound like they have fantastic potential..... on paper.
HOPE... IF... MIGHT.
I call them the "HIM" for short.
Quote from sle:
You realize that options cost money for a reason?
Nah...put_master never has to buy options. He just sells nickel puts to his heart's content and makes impressive annualized returns. But there is no risk because the puts are:
A. out of the money
B. on "strong companies you wouldn't mind owning"
Just HOPE your company doesn't miss earnings, but IF they do, you MIGHT lose your house...
Yep, but that's not really the issue.Quote from sle:
You realize that options cost money for a reason?
The issue is why are such low probability trades like strangles and straddles so popular?
I suggest it's for the same reason people invest in lotteries.
People enjoy the fantasy of investing in HOPE.... IF.... MIGHT.
(H.I.M.)
And beccause those strategies sound pretty reasonable..... on paper.
There are plenty of other higher probability trades to consider risking ones cash in.
But they lack the potential dollar and % return fantasy, that investing in H.I.M. offer.
People love a good story.
And few strategies read as good on paper, as the potential happy ending offered by straddles and strangles
I think the best trade is one that tries to balance the blend of potential with probability.
The fantasy of HOPE.... IF.... MIGHT, that straddles and strangles offer, tend to pull investors more towards potential vs probability.
Frankly, I think they are better off making a series of 3:1 bets on the roulett wheel in vegas.
A "potentially" good return, and better "probability" of actually winning 3:1
Investing in anything, is always about potential vs probability.