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Short strangles on stocks
- Thread starter falcon
- Start date
Quote from sle:
Are you bwolinskys buddy? Seems like you both belong in that special thread...
Could you explain how someone would Dynamically Hedge Short Strangles such as Don Bright's example with the $40.00 stock. Selling the 35 Put and 45 Call will bring in a low premium and a $5.00+ swing either way isn't very much. I would exit the entire position when one of the strikes got reached.
How does Dynamically Hedging work without burning up the premium you collected.
Quote from IVtrader:
respectfully, this is very inaccurate. Iron Condors are subject to fluctuating markets just like any other strategy and therefore will require adjustments on occasion as others
What is an adjustment? Isn't that just entering another position to make up for the unrealized loss on the current one, in this case an Iron Condor. Why not just close the Iron Condor - take the loss or profit - and then start a whole new position.
Keep it simple.
How does long straddles fit into this thread?Quote from IVtrader:
In addition Iron Condors, UNLIKE long straddles, are a negative vega trade needing falling IV to benefit them
Both falling IV and a narrow trading range will benefit the Iron Condor. An IC is much safer than just a short strangle and the hedge and adjustment are built into it.
That's the point of hedging - you don't make as much, but you also don't lose as much when things go against you.Quote from ForexForex:
How does Dynamically Hedging work without burning up the premium you collected.
bwolinsky was definitely hereQuote from ForexForex:
Keep it simple.
How is that? Please, enlighten us!Quote from ForexForex:
Keep it simple.
An IC is much safer than just a short strangle.
Quote from ForexForex:
How does Dynamically Hedging work without burning up the premium you collected.
Quote from sle:
That's the point of hedging - you don't make as much, but you also don't lose as much when things go against you.
sle ....... the word Dynamic is what is wrong, not the Hedging part. Dynamic is something that constantly changes, so the position is constantly re-balanced. That will eat up the small credit very quickly.
Quote from ForexForex:
What is an adjustment? Isn't that just entering another position to make up for the unrealized loss on the current one, in this case an Iron Condor. Why not just close the Iron Condor - take the loss or profit - and then start a whole new position.
Keep it simple.
How does long straddles fit into this thread?
Both falling IV and a narrow trading range will benefit the Iron Condor. An IC is much safer than just a short strangle and the hedge and adjustment are built into it.
if you have an Iron Condor over 10 lots, and the market moves against you,that doesn't necessarily mean the position is losing $$$$ yet 80% of the time you will need to hedge your position by managing the deltas and you can do that in any number of ways. that is an adjustment but you would know that if you had really done this before which you clearly have not
re:"An IC is much safer than just a short strangle and the hedge and adjustment are built into it. [/B][/QUOTE]". that is incorrect and there is no hedge built into
SLE is correct you are in danger of being considered a "troll" like bwolinski
Adjustments can also be made to winning positions. If you have a wide condor and you had some price movement (but still a good distance away from the short strike) and the passage of time (decay), the UL may no longer be equidistant from the short strikes. Rather close the entire position, you can roll the more OTM leg in, restoring the original distance to strike on that side, bringing in add'l premium. You can argue that it's a different position but the adjustment was done to maximize return rather than make up losses.Quote from ForexForex:
What is an adjustment? Isn't that just entering another position to make up for the unrealized loss on the current one, in this case an Iron Condor. Why not just close the Iron Condor - take the loss or profit - and then start a whole new position.
Quote from ForexForex:
Could you explain how someone would Dynamically Hedge Short Strangles such as Don Bright's example with the $40.00 stock. Selling the 35 Put and 45 Call will bring in a low premium and a $5.00+ swing either way isn't very much. I would exit the entire position when one of the strikes got reached.
How does Dynamically Hedging work without burning up the premium you collected.
You simply evaluate the bell curve of the position, find the "best" value to sell more puts or calls to adjust deltas... hopefully without adding too much to your gammas. Possibly far out 30's or 50's....The floor traders have dozens of strikes and expiry and have to keep the overall positions within a "reasonable" bell curve, same thing.
Don't over-complicate this, seriously this is entry level position adjustment, nothing more, nothing less. Keep it simple.
FWIW,
Don
Quote from Don Bright:
I have to agree. Back in the late 70's and early 80's when we were helping to "invent" a lot of this (with Blair Hull of Hull Trading and Options Research), the straddles, strangles, butterflies, condors, iron condors... all this "stuff" - we were doing them for quarters, 50 cents, and full dollars... not having to compete for pennies and even sub-pennies. And when we add the HFT "instant hedge" groups out there...well, let me just say that you have to be really well informed, do the math well... and "almost never buy nothin'" - you lose the edge, however slim it might be.
For those of you who know what I mean when you price out the 3 way conversions and "reverse conversions" - knowing full well that there are no "over valued" or "under valued" options when looking at all 3 sides. All you can do is go with the IV and "hope" you are right going to the next expiration. Sell everything, and adjust by selling more...rarely if ever buy back anything (I know some of you have to based on account size limitations, and I respect and understand that)....
So important to graph your positions with 2 or 3 std deviations, and bite the bullet and ride the wave. A lot of money can still be made, but much smaller returns for more risk than the first 20 years of option trading.
In any event, listen to these pro's - don't get into anything you don't understand fully... have your plan in hand as they say.
All the best,
Don
Don
just curious.....did you actually work with Blair Hull at Hull Trading or did you just happen to be trading by yourself, experimenting with these strategies, during that same time period back then