Quote from sonoma:
If I'm reading your question correctly, you've got the equivalent of 2 call or put calendars. It's a fine position, if that's the position you want.
Quote from Strangler:
Ya basically a calendar call and a calendar put.
I like to be long theta. The short strangles and calendars accomplish this. Though the calendars make me long vega which is fine assuming I enter the trade when vol is "low".
Thanks for the replies. Any other good long theta strategies for me to consider?
Quote from sonoma:
You may not be viewing your trade in this way, but many traders think that buying a same strike put and call calendar somehow places their inventory in a particularly favorable position. My previous post was to clarify that such "dual" calendar purchase is synthetically either 2 call calendars or 2 put calendars. Again, there's nothing wrong with such a trade, it's just that you need to want 2x calendars instead of 1x and not be misled thinking that a put and call calendar will result in anything other than the p/l of 2 same-strike call or put calendars.
Quote from Strangler:
Thanks again for the reply sonoma.
I see what you're saying now. I understand the P/L of the position and how it will lose value as the underlying moves futher in or out of the money. I guess I was worried that there would be some kind of difference depending on whether the position was in vs. out of the money.
So are you saying that no matter how far in or out of the money the position moves, the P/Ls of the calls vs. puts will be identical at all times?
Quote from drcha:
You might want to try to get hold of Paul Forchione's books or look on his site. He has some very good and interesting ideas for adjusting short straddles.
http://www.amazon.com/Trading-Optio...=sr_1_1?ie=UTF8&s=books&qid=1287198834&sr=1-1
They include buying a long option in the direction of the move or entering a synthetic in the direction of the move, and getting out early. You can base your adjustments on deltas, trying to stay between -25 and 25, for instance. He has similar ideas for double ratio spreads. You can extend these ideas to double calendars with a few extra shorts.
Quote from sonoma:
Hedging with the underlying locks you into negative replication error if stat vol is greater than vol you shorted. Be careful if dislocations in your underlying happen with any regularity. If so, your hedge will be the source of one big headache if you're on the wrong side of the move.
Consider trading a fly instead of the short straddle. Over many trades, the fly will almost always yield a superior risk-reward profile compared to a short straddle unless you've got the Midas touch.
As another poster suggested, paper trade until you learn more. If you have to play, become Captain One-Lot on something with lots of liquidity.
I'm not exactly sure what you're asking, but if you're questioning the theory, it's simply the way options are structured. Nothing mysterious about it, it's just the way it is. If you're looking for an example, all you need do is find a period of time that stat vol is greater than implied and do the arithmetic. An inconvenient truth is that you can end up with a negative p/l even if realized vol ends up less than implied.Quote from deltahedge:
Care to explain how hedging with the underlying assuming HV is greater than the IV you shorted leads to a negative replication error?
Quote from sonoma:
An inconvenient truth is that you can end up with a negative p/l even if realized vol ends up less than implied. [/B]
Ageed. I was just pointing out more explicitly that the opposite of statvol>implied does not necessarily imply a + p/l. It's just one of several conditions that have to work in your favor.Quote from tomk96:
or you can still do very well because you made your delta hedges. and if you are getting decay, it comes down to how that is performing vs your hedging.