Selling ATM Straddles

[atticus]

Quote from Pa(b)st Prime:

Would you then agree with this statement?: In an infinite sample the ATM collection will equal all payouts.

Yeah, of course. Assuming the traded vol = realized vol and the hedge is optimal.

Prob of touch x payout.

When you find someone who can trade the perfect hedge, let me know.

 

[Pa(b)st Prime]

Quote from atticus:

Yeah, of course. Assuming the traded vol = realized vol and an optimal hedge.

How about hedgeless?

 

[atticus]

Quote from Pa(b)st Prime:

How about hedgeless?

PoP under a passive buy and hold strategy? No, it doesn\'t change under depth of trials.

 

[Pa(b)st Prime]

Quote from atticus:

PoP under a passive buy and hold strategy? No, it doesn\'t change under depth of trials.

Thanks. I'm learning.......

 

[atticus]

PoP has nothing to do with expected return.

 

[Div_Arb]

Your reward to risk odds are 1 to infinity. Why do I need to explain this? Trading 101 man, get with the program!

Quote from TraderMojo:

What do unlimited risk and capped profits have to do with odds?

Please justify why selling a strangle is better than selling a straddle.

 

[thejoker67]

Quote from spindr0:

A short straddle has a higher probability of making a profit than a long straddle. Unfortunately, it's not that simple.

The short straddle has a limited profit potential and a large risk potential (lots of small winners and losers and an occasional killer loss, wiping out many small gains).

The long straddle has a limited loss potential and a much larger potential gain (lots of smaller gains and losses, some larger losses and an occasional killer gain).

Unless you clearly understand the risk and you're very agile with money managment and position adjustment, my two cents is to go with strangles and spreads. Mitigate the risk! Looking like a deer in the headlights when a naked position is crashing around you can be berry, berry unsettling

Is this correct? A short straddle has a higher probability of making a profit than a long straddle?

No, I am not thinking of writing naked straddles, but I am trying to learn about options & probability

 

[atticus]

Quote from Div_Arb:

Your reward to risk odds are 1 to infinity. Why do I need to explain this? Trading 101 man, get with the program!

You will lose a bit more on that strangle at infinity, risk-adjusted. Time for remedial trading 099.

 

[spindr0]

Quote from thejoker67:

Is this correct? A short straddle has a higher probability of making a profit than a long straddle?

The probability of making a profit is very different from the expected return.

 

[atticus]

Quote from spindr0:

The probability of making a profit is very different from the expected return.

Thanks Spin -- apparently he\'s not reading the thread in its entirety.