Since the thread started by Mark_nyc intrigued me, I wanted to make a weekly post of the short straddle I entered on March 20, 2008. I initially placed the following order, using the ES (s&p 500 emini) futures as the underlying: Sold 1 Call APR08 ES 1325 and sold 1 PUT APR 08 ES 1325. The total premium received was 75.25. The total dollar amount was $3,763.00. The initial margin for this trade was $6,500.00 with maintenance margin at $6,000.00. As of the close on March 28, 2008, the total premium was 62.50. The total dollar profit to date is $634.00. The current maintenance margin is $5,629. The ES futures traded as follows: Hi for the week: 1365.50; Lo: 1313.75; Close: 1319. I will continue to update this trade until Expiration Friday.
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Short Straddle Update
- Thread starter jwcapital
- Start date
Quote from jwcapital:
Since the thread started by Mark_nyc intrigued me, I wanted to make a weekly post of the short straddle I entered on March 20, 2008. I initially placed the following order, using the ES (s&p 500 emini) futures as the underlying: Sold 1 Call APR08 ES 1325 and sold 1 PUT APR 08 ES 1325. The total premium received was 75.25. The total dollar amount was $3,763.00. The initial margin for this trade was $6,500.00 with maintenance margin at $6,000.00. As of the close on March 28, 2008, the total premium was 62.50. The total dollar profit to date is $634.00. The current maintenance margin is $5,629. The ES futures traded as follows: Hi for the week: 1365.50; Lo: 1313.75; Close: 1319. I will continue to update this trade until Expiration Friday.
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JW - what do you consider to be the advantages and disadvantages of selling a straddle on ES rather than SPY? Another thread mentioned that TOS is going to start handling options on futures in 2 weeks so I'm wondering if there are any substantial benefits to trading ES vs. SPY. Thanks
Quote from jwcapital:
Since the thread started by Mark_nyc intrigued me, I wanted to make a weekly post of the short straddle I entered on March 20, 2008. I initially placed the following order, using the ES (s&p 500 emini) futures as the underlying: Sold 1 Call APR08 ES 1325 and sold 1 PUT APR 08 ES 1325. The total premium received was 75.25. The total dollar amount was $3,763.00. The initial margin for this trade was $6,500.00 with maintenance margin at $6,000.00. As of the close on March 28, 2008, the total premium was 62.50. The total dollar profit to date is $634.00. The current maintenance margin is $5,629. The ES futures traded as follows: Hi for the week: 1365.50; Lo: 1313.75; Close: 1319. I will continue to update this trade until Expiration Friday.
It is a good idea (I was going to suggest it last week as a response to your post in the other thread, but I was not sure it was appropriate to ask). Some clarification questions if you do not mind:
1. When you got filled for the straddle, where was exactly ES at?
2. Does the current premium you posted above correspond to the premimum when ES was at close? If yes, what prices did you use to determine the straddle premium (bid, ask, middle, etc?)
3. Does your initial margin include the premimum received from sale of straddle? In order words, is it some of your cash + premium? The latter is my understanding, but I wanted to make sure that is also what you meant.
It would also be helpful if you could post the high and low of the straddle premimum, as well as the high and low of margin requirement. The latter is important as it would determine the true rate of return on margin (particularly if the maintaince margin is hit and covered by the other cash in account). I am assuming that you understand my latter point, but if I am not clear pls let me know.
Thanks for the good work and for sharing it.
Quote from nazzdack:
?........ you may want to get out before 8:50am (CST) on Tuesday. We'll see.
Why? Are you afraid of a huge jump to the upside or downside? Are you concerned about the construction spending report? Or the ISM index? The short straddle, based on posted data, has survived worst situations. Like you said, we will see.
Quote from theta636:
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JW - what do you consider to be the advantages and disadvantages of selling a straddle on ES rather than SPY? Another thread mentioned that TOS is going to start handling options on futures in 2 weeks so I'm wondering if there are any substantial benefits to trading ES vs. SPY. Thanks
You get better leverage with the ES than the SPY. The margin requirement for the ES trade is lower, even counting portfolio margin. As far as TOS, I like them for stocks and stock options. I loe GlobalFutures for Futures and Futures options.
Quote from riskfreetrading:
It is a good idea (I was going to suggest it last week as a response to your post in the other thread, but I was not sure it was appropriate to ask). Some clarification questions if you do not mind:
1. When you got filled for the straddle, where was exactly ES at?
IT WAS HOVERING AROUND 1325. SINCE I COULDN'T EXECUTE THE LEGS SIMULATEOUSLY, I GOT A HIGHER PREMIUM FOR THE CALL BECAUSE OF A RISE IN THE UNDERLYING. THE FUTURES ENDED UP CLOSING AT 1324.50, SO IT WAS CLOSE ENOUGH FOR ME.
2. Does the current premium you posted above correspond to the premimum when ES was at close?
YES. THE CURRENT PREMIUM IS DERIVED FROM THE CLOSE ON FRIDAY, MARCH 28. THE FUTURES CLOSED AT 1319, FIVE AND A HALF POINTS BELOW THE PREVIOUS THURSDAY'S CLOSE.
If yes, what prices did you use to determine the straddle premium (bid, ask, middle, etc?)
THE BROKER USES SETTLEMENT PRICES.
3. Does your initial margin include the premimum received from sale of straddle? In order words, is it some of your cash + premium? The latter is my understanding, but I wanted to make sure that is also what you meant.
YES. INITIAL MARGIN DOES INCLUDE PREMIUM PLUS SPAN MARGIN. IN OTHER WORDS, INITIAL MARGIN FOR THE TRADE WAS ABOUT $6500.00. SUBTRACT THE PREMIUM RECEIVED (3760) AND YOU GET $2740.00. SO, I BASICALLY HAVE TO PUT UP THAT AMOUNT AS PERFORMANCE BOND FOR THE SHORT STRADDLE.
It would also be helpful if you could post the high and low of the straddle premimum, as well as the high and low of margin requirement. The latter is important as it would determine the true rate of return on margin (particularly if the maintaince margin is hit and covered by the other cash in account).
THE HIGHEST POINT OF THE PREMIUM WAS ABOUT TWO POINTS ABOVE THE INITIAL PREMIUM. TIME DECAY IS THE KEY, SO I WOULD EXPECT THE TOTAL OPTION VALUE TO DECREASE AS TIME PASSES, AND IT HAS. AS FOR THE MARGIN REQUIREMENT; OBVIOUSLY WE ARE ONLY CONCERNED ABOUT THE MAINTENANCE MARGIN, SINCE I WILL NOT BE PLACING ANY ADDITIONAL TRADES. AS THE TOTAL OPTION VALUE DECREASES, I EXPECT MAINTENANCE MARGIN TO DECREASE AS WELL--AND IT HAS. I KEEP A GREAT DEAL OF RESERVE CASH IN MY ACCOUNT, SO GETTING A MARGIN CALL IS EXTREMELY UNLIKELY. IN ADDITION, MY STOP LOSS IS 50-60% AND WILL PROBABLY DECREASE EACH WEEK AS WE MOVE CLOSER TO EXPIRATION; SO IF THE TOTAL PREMIUM REACHES 110-115, I WILL EXIT THE TRADE (THIS WOULD REPRESENT A $2,400 LOSS VERSUS AN EXPECTED $1800.00 GAIN). FOR THIS TO HAPPEN, THE MARKET NEEDS TO MOVE ABOUT 110 POINTS IN ONE DIRECTION BEFORE I HAVE TO WORRY. ONE OF THE LEGS WILL BE WORTH NOTHING AND THE OTHER WILL HAVE MOSTLY INTRINSIC VALUE LEFT. BASED ON THE RAW DATA, I AM REALLY NOT CONCERNED. HISTORICALLY, SHORT STRADDLES WORK BEST IN HIGH VOLATILITY SITUATIONS, SO THIS IS THE IDEAL ENVIRONMENT.
I am assuming that you understand my latter point, but if I am not clear pls let me know.
HOPE THIS INFO HELPS.
Thanks for the good work and for sharing it.
Good discussion, jwcapital thanks for replying to my pm btw.
Hope you dont mind i post my trades here too since we are playing the same game almost.
I wrote an otm april iron condor when es was around 1300. (BUY 1150P,SELL 1200P,SELL 1400C, BUY 1450C). For 15 contracts, the initial/maintenance margin was around 10k, and a net premium of 9.5 per contract.
Currently the net premium is at 5 per contract, resulting in a ~40%($3300) gain . Unfortunately when the market zapped up the 1350 in 2 days earlier, i paniced and bought 7 more contract of 1385C at 18.5 to make the iron condor delta neutral with an upside bias. So now i am sitting at -$1200 loss currently.
I still think SP500 will make a run to the upside based on technical and the short term bullish sentiment, the market gapped up to 1359 in just 2 days, followed by 3 down days of smaller consolidation movement all above the 20 MA, which is a sign it's building up for another upward run. Will look to close out the 7 1385C contracts when sp hits 1380 or drops below the 20 MA as a stop loss.
JW, what's your reasoning for using a short straddle vs an otm strangle/condor? as we are both betting the SP will not move too much by expiration. Is it to keep the position smaller? as you would need to write more contracts if doing a strangle or condor.
Hope you dont mind i post my trades here too since we are playing the same game almost.
I wrote an otm april iron condor when es was around 1300. (BUY 1150P,SELL 1200P,SELL 1400C, BUY 1450C). For 15 contracts, the initial/maintenance margin was around 10k, and a net premium of 9.5 per contract.
Currently the net premium is at 5 per contract, resulting in a ~40%($3300) gain . Unfortunately when the market zapped up the 1350 in 2 days earlier, i paniced and bought 7 more contract of 1385C at 18.5 to make the iron condor delta neutral with an upside bias. So now i am sitting at -$1200 loss currently.
I still think SP500 will make a run to the upside based on technical and the short term bullish sentiment, the market gapped up to 1359 in just 2 days, followed by 3 down days of smaller consolidation movement all above the 20 MA, which is a sign it's building up for another upward run. Will look to close out the 7 1385C contracts when sp hits 1380 or drops below the 20 MA as a stop loss.
JW, what's your reasoning for using a short straddle vs an otm strangle/condor? as we are both betting the SP will not move too much by expiration. Is it to keep the position smaller? as you would need to write more contracts if doing a strangle or condor.
It makes three of us.
I did short straddle for SPY 132 last Friday but I did not follow to the short straddle plan and I wasted money on protective put and call 139 and 125 (7 from 132 as I mentioned in previous thread since the credit was close to 7) â ended up with iron butterfly.
1. Since my gut feeling was we were due to a big upward move I did only 1 contract and my fills were worse then appropriate bid/ask of the closing prices.
2. I got 7.5 for short call and put and paid 2.65 for protective call and put for a credit of 4.85.
I followed the prices for spy 132 straddle for the last week and the changes were:
Date,Price,Call,Put,,(Change),Ask,Ask,BuyStraddle
3/28/2008,131.51 (-1.27),3.05,3.3,6.35
3/27/2008,132.78 (-0.42),3.85,2.9,6.75
3/26/2008,133.20 (-1.65),4.2,2.8,7
3/25/2008,134.85 (0.13),5.35,2.29,7.64
3/24/2008,134.72 (2.64),5.4,2.35,7.75
3/20/2008,132.08 (2.41),4.1,3.7,7.8
I followed prices for jwcapital futures trade to see how it compares with my spy trade.
Today, SPY straddle I sold 7.5 I could by for around 6 (OK gain).
My iron butterfly I can close for 4.6 today (not much gain).
It will be interesting to see if there is any possibility of adjustment when things go wrong (of if IV goes down in the future).
I keep the position till any of my protective options is OTM or the short have time value left in them.
Mark
I did short straddle for SPY 132 last Friday but I did not follow to the short straddle plan and I wasted money on protective put and call 139 and 125 (7 from 132 as I mentioned in previous thread since the credit was close to 7) â ended up with iron butterfly.
1. Since my gut feeling was we were due to a big upward move I did only 1 contract and my fills were worse then appropriate bid/ask of the closing prices.
2. I got 7.5 for short call and put and paid 2.65 for protective call and put for a credit of 4.85.
I followed the prices for spy 132 straddle for the last week and the changes were:
Date,Price,Call,Put,,(Change),Ask,Ask,BuyStraddle
3/28/2008,131.51 (-1.27),3.05,3.3,6.35
3/27/2008,132.78 (-0.42),3.85,2.9,6.75
3/26/2008,133.20 (-1.65),4.2,2.8,7
3/25/2008,134.85 (0.13),5.35,2.29,7.64
3/24/2008,134.72 (2.64),5.4,2.35,7.75
3/20/2008,132.08 (2.41),4.1,3.7,7.8
I followed prices for jwcapital futures trade to see how it compares with my spy trade.
Today, SPY straddle I sold 7.5 I could by for around 6 (OK gain).
My iron butterfly I can close for 4.6 today (not much gain).
It will be interesting to see if there is any possibility of adjustment when things go wrong (of if IV goes down in the future).
I keep the position till any of my protective options is OTM or the short have time value left in them.
Mark
Quote from newguy05:
Good discussion, jwcapital thanks for replying to my pm btw.
Hope you dont mind i post my trades here too since we are playing the same game almost.
I wrote an otm april iron condor when es was around 1300. (BUY 1150P,SELL 1200P,SELL 1400C, BUY 1450C). For 15 contracts, the initial/maintenance margin was around 10k, and a net premium of 9.5 per contract.
"To compare apples to apples, you basically did 15 iron condors. You net premium per iron condor was 9.50 (9.50 premium times 15 iron condors times 50 equals $7125.00 total premium for the entire trade). I did one short straddle. My net premium per short straddle was 75.25 (75.25 times 1 short straddle times 50 equals $3763.00). Am I correct in this calculation?"
Currently the net premium is at 5 per contract, resulting in a ~40%($3300) gain . Unfortunately when the market zapped up the 1350 in 2 days earlier, i paniced and bought 7 more contract of 1385C at 18.5 to make the iron condor delta neutral with an upside bias. So now i am sitting at -$1200 loss currently.
I am currently at a $822.00 gain as of 10:30 AM 4-1-08. My expected gain is $1800.00
I still think SP500 will make a run to the upside based on technical and the short term bullish sentiment, the market gapped up to 1359 in just 2 days, followed by 3 down days of smaller consolidation movement all above the 20 MA, which is a sign it's building up for another upward run. Will look to close out the 7 1385C contracts when sp hits 1380 or drops below the 20 MA as a stop loss.
"I do expect the ES to bounce around; up Monday, Tuesday, down Wed, Thursday, Friday."
JW, what's your reasoning for using a short straddle vs an otm strangle/condor? as we are both betting the SP will not move too much by expiration. Is it to keep the position smaller? as you would need to write more contracts if doing a strangle or condor.
"First, the short straddle is easiest to execute with my broker. Since my broker only accepts native GLOBEX orders, I cannot enter the short straddle as a spread nor can I enter the orders simulateously..so I have to leg in. If I did two contracts per side, my total margin requirement would be about 13k, but my net premium would have been $7525. Based on Mark_nyc's data, I can have an expectaqtion of netting 50% of that..so it looks like my returns will be better than yours with less risk. If any of your legs goes ITM, your losses will increase, for your spreads will widen as the market goes further ITM. I will simply exit both trades once the total premium reaches 113, for a 50% loss. So, I am looking at a possible gain of $1800.00 vs a loss of $1881 or so. It will be interesting to see how the trades end up. I will continue to report weekly until expiration or until I exit the trade."