Short Straddle Update

Quote from jwcapital:

Couple of observations. One, to reply to the previous poster: The RAN platform will not allow the entering of a short straddle. I tried it, and the response I get is that market orders are not permitted on GLOBEX.
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It's just a limitation of your broker's API to Globex then - there is 100% native support of spread orders in futures and options as of sometime last year, and I'm fairly certain IB no longer emulates option spreads internally.

Just pull up the CME's historical ftp spread data for Globex (warning big file) to see how active these are.
 
Quote from RichardRimes:

JW thanks for the trade info and update. March 20th when trade was opened the VIX ranged from abt 30 (on open) to 26.5. On Apr 11th (update) range 22.5-23.5. Definitely trade has benefited from the decrease in VIX. Even when the direction went long against you the lower level in the vix seemed to offset the directional bias. OTH had the market dropped significantely below 1325 and the vix stayed above 30 I assume the trade would not have been as profitable.
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I like this comment. BTW, I am keeping track of the VIX--I note it when I place the straddle, and I note it on Expiration Day (I use this reading for the next straddle). Based on mark_nyc's data, the short straddle loses during transition periods--going from high volatility to low and vice versa. It seems to do best when VIX is in a high range, above 20, like it has been for a while. If I can predict the transition periods, then I would trade unbalanced straddles. For instance, once the markets starts to go higher (probably has to close and stay above 1400), then I would sell 3 puts and 2 calls or even 3 puts and 1 call. On the other hand, I don't have a crystal ball--I use the VIX with Bollinger Bands as a guide. In addition, I use a sliding stop-loss scale as suggested by one of the posters: 50% for week 1, 40% for week 2, 30% for week 3, and 20% for week 4 (10% for week 5). So, at least my losses will be smaller during transition periods. Also, losses will tell me that I need to change my strategy--again looking at unbalanced straddles. Again, thanks for your comments.
 
Summary: spy 132 April straddle could sell 7.5 last month. I have Iron Butterfly 125-132-139 (selling straddle and getting protective puts/calls) for 4.85 (max loss around 2.15).
Just closed my fly today for 4.2. Profit: 0.65. (should closed on Tuesday, regretted yesterday, do not want to wait till Tomorrow).

Short straddle will be even if spy is at 139.5 (today at: 136.24).
Observations:
- protective put/call were (as stated before and in the first thread) in fact waist of money. Fly for the first three weeks was +0.40/-0.40 profit/loss. Whatever I gained on time decay for straddle I lost on long puts/calls.
- Short straddle was never loosing money and changes were slow.
- Only this week provides more excitement when positions are moving more closely with spy changes (otherwise it was like watching paint dry) result of not much time decay left. I could do some adjustments but I entered the position with clear exit criteria.
Will share more over the weekend and after some observations from jwcapital.
 
Quote from jwcapital:

I like this comment. BTW, I am keeping track of the VIX--I note it when I place the straddle, and I note it on Expiration Day (I use this reading for the next straddle). Based on mark_nyc's data, the short straddle loses during transition periods--going from high volatility to low and vice versa. It seems to do best when VIX is in a high range, above 20, like it has been for a while. If I can predict the transition periods, then I would trade unbalanced straddles. For instance, once the markets starts to go higher (probably has to close and stay above 1400), then I would sell 3 puts and 2 calls or even 3 puts and 1 call. On the other hand, I don't have a crystal ball--I use the VIX with Bollinger Bands as a guide. In addition, I use a sliding stop-loss scale as suggested by one of the posters: 50% for week 1, 40% for week 2, 30% for week 3, and 20% for week 4 (10% for week 5). So, at least my losses will be smaller during transition periods. Also, losses will tell me that I need to change my strategy--again looking at unbalanced straddles. Again, thanks for your comments.
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I agree completely with selling the straddle during high vol periods, buying the straddle when it seems vix is low is problematic because you are losing theta often at a faster rate than vol rises. I've been playing around with BB's and slow stochastics (sp?) on intra day ES trades as well (5min) and was wondering if the SS with BB's could be used for a bit longer time frames for just the trades you are suggesting. Transition periods are the hardest to really see. Last fall when the vix got up into the teens I (and others) thought wow this is really high! oops! Now over the summer will we have vix back into the teens? :p good luck with your trades!
 
Quote from erlewine:

It's just a limitation of your broker's API to Globex then - there is 100% native support of spread orders in futures and options as of sometime last year, and I'm fairly certain IB no longer emulates option spreads internally.

Just pull up the CME's historical ftp spread data for Globex (warning big file) to see how active these are.
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You are correct. FOP spreads are native. RCG RAN platform will not execute FOP spreads. Global's tech support attemted to use the RAN platform to execute a spread, but he was not successful. He did state, however, that the broker/FCM was looking into introducing the CQG platform in about nine months. This platform appears to be compatible witcuting FOP spreads. Anyone ahve any experience with the CQG platform?
 
crazy month, here's a log i kept for my review:

1) 3/20, expecting sideway action at around 1300, wrote IC:
- Wrote 15x 1150/1200 put spread at 5pt
- Wrote 15x 1400/1450 call spread at 4.5pt
* Net=9.5 x 15 x 50 = 7125 max profit.

2) 3/25, sp500 gaps up to ~1355, panic & fear took over. Made my IC delta neutral upside bias. (BAD BAD TRADE, 2 consective day of huge rally, resistence right above 1360, technical was so obvious dunno what the hell i was thinking at the time)
-Buy 7x 1385C at 18.75 (made the IC delta neutral)


3) 3/28, sp500 continues consolidation with small downward movement to fill the gap each passing day, market/media bullish sentiment fading.
But because everything points to another major rally(when?), decided to hold on to the 7x 1385C, which already lost ~50% trading at 10 now,
- no action

4) 4/1, expected rally came, gap to 1370! My IC 1150P/1200P leg is way OTM now, no point leaving it open. Closed:
-Cover 15x 1150P/1200P at 0.5, Profit gained: 5-0.5=4.5x15=67.5

5) 4/2, no continuation of rally, sideway again. Decided to close the 7x 1385C because a)Strong resistence at 1370-80 level b)theta bleeding c)this was a hedge & bad trade to begin with, happy to break even again
- SOLD 7x 1385C at 19.5, Profit gained: 19.5 - 18.75 -> 0.75x7=5.25

6) 4/9, continuation of sideway consolidation, technical is setting up to another rally, question again is when. Decided to position myself for the rally.
- Cover 7x 1400C/1450C at 3.25, Profit gained: 4.5-3.25->1.25x7=8.75
- Sell limit: 8x 1400C/1450C at 1.75 (what's left of the IC)
- Buy 2x ESM8 at 1360
- Buy limit 2x ESM8 at 1344

8) 4/11, sp500 made a big downward move, just breaking the MA20/50 convergency(very strong support level) but still above the previous support of 1320. Decided it's a fakeout, added to the position, expecting a bounce and quick trade.
- Buy 2x ESM8 at 1344 (limit hit)
- Buy 2x ESM8 at 1343
* 6x ESM8 at 1349 open total

9) 4/14, with earnings and option expiration coming, decided to reduce downside risk for the week. My bet was for the market to continue sideways and let the 1340C to expire worthless, then next week market gaps up per the expected rally and i close out the ES.
If market gaps up this week, i am fully covered upside side just no profit which am fine with as well, as my IC has closed nicely.
- Cover 8x 1400C/1450C at 1.75 (limit hit), Profit gained 4.5-1.75->2.75x8=22
** IC closed.
- Wrote 6x 1340C at 11.5 (covered call)

10) 4/18, the rally came 2 days too early!!!!!
- Covered 6x 1340C at 49.75
- Sold 6x ESM8 at 1389
- Basically breakeven, maybe 1 pt profit...
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Total profit: 67.5+5.25+8.75+22->103.5x50->$5175- ~$350(commission)
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4/18, strong resistence at 1400C, expect some sideway action and multiple tries before breaking 1400C. But if 1400C is broken, major rally incoming!!
-wrote 1x May 1400C at 25.75
 
Final short straddle update. To recap, on March 20, I sold 1 P1325 @36 and 1 C1325 @39.25. Initial margin was $6500.00. The total premium received was $75.25x50=$3762.00. During the period, the highest paper profit was about $2300.00. On expiration Friday, the total premium at settlement was $62.90. This is a profit of $12.35x50=$617.00. The return on margin was 9.5% (the maintenance margin requirement never exceeded the amount of margin required to enter the trade). The VIX started at 26.62 and ended at 20.13. It is now sitting on the lower Bollinger Band. At the same time, the ES, closing with average volume, reached 1398 and closed at 1388. Based on this observation, I would expect a pullback, then continued upward movement. The uptrend will be confirmed when the ES settles above 1400 and 1400 becomes support. Until then, we are range-bound. Now, I actually did better than the above-mentioned profit. On Thursday, April 24, I placed a buy stop for the ES8M just above Wednesday's high--this trade, if executed, would cover my long call. If the stop wasn't hit on Thursday or Friday, my profit would have been even higher. Well, the stop was hit late Thursday, and I was filled at 1371.75. This buy stop was the only extra trade I made the entire period; no other actions were required. So, my actual profit is $75.25-$46.75=$28.50x50=$1425.00. The return on margin was 22%. NEWGUY, FOR COMPARISON PURPOSES, WHAT WAS YOUR RETURN ON MARGIN?

Now, onto May trades. I am thinking about doing an unbalanced short straddle (3 puts to 2 calls). My rationale was laid out above. I am thinking an early, mild pullback next week, and then continued upward movement. The problem with this trade is if the market has a worse than anticipated correction, for the calls won't sufficiently cover the puts. The advantage with this trade is if the market penetrates and stays above the 1400 level. If I go with a balanced short straddle, I am OK if the market stays range-bound. Another problem here is the VIX is much lower (hitting an area last seen at the end of December 2007); so I don't get as much wiggle room as I did with the April straddle (where VIX was at 26.62). The last time the VIX hit the lower BB band was April 1st. It did bounce off, and the ES did have a pullback almost to the open of April 1st. So, based on that action, I am believin that "history repeats itself."

One last question and it is a logistic question. I have never been subject to an assigment of any ES futures--I have usually closed them out or allowed them to expire OTM. I know that the April options expired as of 4:15PM ET yesterday. I am long the ES and I have an ITM call that will be exercised, and I will be assigned. When does the assignment occur? Does it occur at 6:00PM ET when the ES GLOBEX opens? Will the assignment/offset be "off the books" come Monday morning? I am asking for I wish to place trades Monday AM and will need my funds to be free of the old trades' margin requirements.

Anyway, it was a pleasure to share my trading experience. I do not have any problem sharing more experiences if the group finds them useful. In addition, I really do appreciate the feedback, for it makes all of us better traders.
 
my initial margin was around $15000 (dont have the stupid passcode card to access ib for exact number right now). So it's about 33% return on margin.

Really not sure where the es is going, going to hold cash and wait to see what happens before opening up May...
 
May opened, 6x call spread (1400/1450) at 17 a pop.

Was waiting for the rally, dont think we have much upside left, maybe 1 more pop before may. Should start heading down again at least to the 1360 level by may. Will leg in the put spread then to create the ic
 
Quote from newguy05:

May opened, 6x call spread (1400/1450) at 17 a pop.

Was waiting for the rally, dont think we have much upside left, maybe 1 more pop before may. Should start heading down again at least to the 1360 level by may. Will leg in the put spread then to create the ic
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Quick question: What is the advantage of legging into an IC? It seems you will lose some time value waiting for the ES to pull back. Then what happens if it doesn't pull back to your predicted level--you lose the trade. Also, what happens if the ES only pulls back to 1370 and not your predicted level--you lose the trade. Then you end up chasing the market to get your bull put spread executed. As someone once told me, you have to accept risk if you want the reward. Interestingly, if you entered your bull put leg at the same time, at 1360/1310, you would have been rewarded on Friday, 4/25. In addition, your bear call leg was briefly breeched on Friday as well.
 
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