Sell daily SPX straddles?

[dorietrading]

I'm not saying selling 0DTE straddles is a good idea, but if you do, then I would recommend buying far OTM wings for 0.10 each, to make it an iron fly - thereby, massively reducing the margin requirement.

Also, close the trade when a pre-set low %age profit is achieved, often in a few minutes, esp if trade is opened within the first half an hour of the market open when the vols are high.
Eg, if a straddle is sold for 28, then close it for 24 db when that price hits.

I've done this a few times, and ended up positive overall, but I don't like the risks for this trade, and now trade other structures.

When closing earlier for profit your are limiting your profits, you're losses will be the same.. The cheap wings will limit your margin (be careful not to overtrade!!) but still you will have big losses..

 

[dorietrading]

IIRC Bouchaud also wrote a paper explaining the correlation between return distributions of a strategy and PnL - the more skewed the strategy, the higher the PnL (you get paid to take risk).

With a 1 day short straddle, its going to be hard to size the position and tcosts might eat into that PnL quite a bit. If you buy wings, that cost alone might eat away most of your expectancy.

Quick example: A 1 day straddle on SPY has 20 vegas. If on average SPY VRP for that one-day straddle is say 2 vol points, thats $40/edge per straddle. Total tcosts might be $10 round trip. So you are left with $30 edge/per.

If you stress your position to a 5% gap down, you are out of pocket $2000/per.

There definitely is a business to hold short gamma risk but your PnL won't be huge since your sizing has to be sensible.

SPY an to small product for this. The tx costs of SPX is in percentage a lot lower..

 

[ffs1001]

When closing earlier for profit your are limiting your profits, you're losses will be the same..

That applies to every single strategy and has nothing to do with straddles, or flies, ICs, long options of any other strat, so I'm not sure what your point is.

 

[darwin666]

I will chime in here . My 2 cents
Doing 0dte spx trades since a long time now. Also I let them expire unless they get itm when I have to figure out wtf to do the.
Earlier it was mon wed Friday. Since may of this year it’s daily.
I am profitable. Beat spy qqq last 2 years and am up ~ 30% Ytd this year.
I do only bear call spreads. Seldom do any puts. Now carefully listen to my next statement. I make more money doing bear call spreads when the market was rising. So post March 2020( when I decided to go 100% cash). I started deploying ( I had to put money to work) and it worked great. So need a rising market to make $$ right now. It’s so volatile . And bear market rallies can wipe me out. I have significantly reduced my bets in current time.

Best thing of this strategy is I sleep every night like a baby since I am 100% cash.

Fuck put side. I am fine with leaving lot of money on the table. ( iron condor ) you get a free trade for same margin on put side. No thanks. I ain’t doing puts. Only call side..

 

[darwin666]

If that genius idea printed money.....it would have been exploited big time by people much more inclined and smarter than you by now.

There is no fixed, flat, method to making market money. If you want to make money...you have to reasonably know the future, and have good trade management as well. And balls, courage, intelligence, foresight, faith, conviction and Leverage/options.

Well Said. Trading since 2 decades has taught me one thing. There is no fixed flat method to make $$. Ha ha. It works till it doesn’t. As tyson said. “ everyone had a plan till they get punched in the face”. Selling options. Uff. So ducking dangerous. As they say also “ picking up pennies in front of a freight train “

 

[dorietrading]

That applies to every single strategy and has nothing to do with straddles, or flies, ICs, long options of any other strat, so I'm not sure what your point is.

The point is that taking profits early and don't cut your losses will lower the overall P&L. If you want to manage the position its better to limit your losses and let your profits run..

 

[ffs1001]

The point is that taking profits early and don't cut your losses will lower the overall P&L. If you want to manage the position its better to limit your losses and let your profits run..

So do you hold every single option trade you open, until expiry time?
Surely, you don't close any trades early, even if they hit your profit level, cos then you are limiting your profits, and its better to limit your losses and let your profits run.

 

[dorietrading]

So do you hold every single option trade you open, until expiry time?
Surely, you don't close any trades early, even if they hit your profit level, cos then you are limiting your profits, and its better to limit your losses and let your profits run.

Sometimes i closes positions early to relieve margin. Most of the time i let them expire or buy them back for 5 cent close to expiration. I don't have a profit level, only risk levels..

 

[ffs1001]

Sometimes i closes positions early to relieve margin.

So you are doing the very thing that you are arguing against here.

Riiiiiight. That makes sense.

Seriously, the amount of self-contradicting and pointless arguing here is laughable.

 

[cesfx]

Here's a backtest of 2022 YTD trading the day before near end of day (14-minutes before the close). Ugly -18.1%

However, here's trading the last 14 minutes and letting the options expire and exercise to cash, a respectable 3.6% (return divided by index price) and Sharpe 1.01

Hello Matt,

Is the first graph, 0dte straddle closed 14min before end of day, and second graph let to expiry? are they batested on 0dte entry?
I have started exploring your backtesting wheel and scanners yesterday.

What parameters can I set, to backtest a specific time of the day. Like your second graph of long straddle 0dte, last 14min of the day?
Is it all 0's for 0dte in the "days to expiration" parameter window?