Selling ATM Straddles

spindr0 · Apr 9, 2007

Quote from atticus:

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

No, thank you.
It's not often that I get it right!

Pa(b)st Prime · Apr 9, 2007

Quote from atticus:

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

I'm surprised.

I would think prob favors the writer with expectancy being neutral.

u21c3f6 · Apr 9, 2007

While the OP asked about the probability, I do believe he was referring to the expected return which is theoritically the same.

Joe.

atticus · Apr 9, 2007

Quote from Pa(b)st Prime:

I\'m surprised.

I would think prob favors the writer with expectancy being neutral.

Correct.

thejoker67 · Apr 9, 2007

Quote from spindr0:

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

Maybe I get it now.

Theoretically, yes selling the straddle will end up with more winners than losers. However, the total dollar value of the losing trades will be the same as the total dollar value of the profitable trades. Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even. Is this correct?

nitro · Apr 9, 2007

Quote from thejoker67:

Maybe I get it now.

Theoretically, yes selling the straddle will end up with more winners than losers. However, the total dollar value of the losing trades will be the same as the total dollar value of the profitable trades. Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even. Is this correct?

http://www.isigmasystems.com/eva.html

nitro

atticus · Apr 9, 2007

Quote from thejoker67:

Maybe I get it now.

Theoretically, yes selling the straddle will end up with more winners than losers. However, the total dollar value of the losing trades will be the same as the total dollar value of the profitable trades. Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even. Is this correct?

Yes, assuming that the straddle buyer and seller are trading at fairval. The $expectancy is equal.

u21c3f6 · Apr 9, 2007

"Therefore, in the long run, theoretically, constantly selling straddles, with no adjustments, you will end up even."

Minus commissions and spreads.

Joe.

TraderMojo · Apr 9, 2007

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!

So why is selling a strangle better than selling a straddle? According to you, the strangle also has risk odds of 1 to inifinity.

asap · Apr 9, 2007

Quote from TraderMojo:

So why is selling a strangle better than selling a straddle? According to you, the strangle also has risk odds of 1 to inifinity.

it is not.

selling a strangle offers just a better prob of success because the BE points are placed beyond 1 standard deviation. so instead of 68% prob of success, you might get for instance 95% prob if wings are placed at 2 SD.

but the odds (expectancy) is the same, that is, zero-slippage-comms.