short strangles

Quote from larryb:



premiums are nice but a short strangle only 10 points away from the strikes would result in a big loss. 100 points away still comes with risk.
More...

Oh okay, so a point is a handle. I wasn't sure. So, my strangle would require much more than $20,000 margin.

So, for $20,000 I get 50 handles (or points) and that would be
a 1080.00 call and a 980.00 put, which gives me about $800 premium if both expire worthless.

And that's about a 4.00% return on $20,000.

Okay, I got it now. Thanks
 
Quote from omcate:



The low VIX is really a problem now.
I am amazed by the number of contracts I need to write in order to earn a few thousand dollars per month.

:( :( :(
:mad: :mad: :mad:
More...

Remenber, that VIX is now calculated differently (as of sept 22) and is no longer the S&P 100 but the S&P 500 and it weights the at the money option heavier than the out of the money. So the effect is to lower the VIX number. The old VIX (now VXO) is a bit higher than the new VIX.
 
Quote from larryb:

I have been trading short strangles 80 to 100 points out-of- the -money call & put options on the S&P 500 Future and would like to know if there are any other high flyer traders that want to share their experiences.
More...

You might always look to buy the out of the money wings ( or at least the downside wing) when shorting strangles to limit risk. This is always the way I traded on the floor of the PCX for 17 years and it served me well. Look to manage risk rather than leasve yourself open to event risk. The Iron Condor achieves the goal of bringing in premium but insures against total loss.
 
Keith,

I recommended that earlier in this thread to some derision due to some claims that buying the wings would eliminate the "edge" of the short strangle strategy. Nonetheless, though I trade off the floor, I make money with iron condors (actually, iron albatrosses, to be precise) on the OEX/XEO most months. So my response is, you can take your edge and. . . well, you get the gist. But seriously, an important point about doing Iron Condors as opposed to short strangles, in addition to limiting the risk in the event a worst case scenario materializes, is the significant reduction in margin and thus the corresponding greater ROI of the strategy. In other words, if traded "correctly", one can consistently create a position that has a positive expectancy with the short strikes outside the standard deviation range, while generating an attractive return with limited risk month in month out.

Again, just my 2 cents.

Regards,

HD
 
Quote from Hello_Dollars:

Keith,

I recommended that earlier in this thread to some derision due to some claims that buying the wings would eliminate the "edge" of the short strangle strategy. Nonetheless, though I trade off the floor, I make money with iron condors (actually, iron albatrosses, to be precise) on the OEX/XEO most months. So my response is, you can take your edge and. . . well, you get the gist. But seriously, an important point about doing Iron Condors as opposed to short strangles, in addition to limiting the risk in the event a worst case scenario materializes, is the significant reduction in margin and thus the corresponding greater ROI of the strategy. In other words, if traded "correctly", one can consistently create a position that has a positive expectancy with the short strikes outside the standard deviation range, while generating an attractive return with limited risk month in month out.

Again, just my 2 cents.

Regards,

HD
More...

HD,
Interesting trade you do with that iron albatross (I have to admit I've never heard of that strategy...very cool) But I agree with you completely about risk vs reward. Just out of curiousity, are you a prop trader? How does your firm calculate your margin? And How is it reduced by putting on the wings?
Regards,
K89
 
Keith,

An Iron Albatross is simply an Iron Condor but without equidistant strikes between the short options. For example, I currently have one on the XEO for November that's long 490 puts/short 500 puts/short 540 calls/long 550 calls at a net credit of $4.50. I always leg into the position, putting on the call spread during rallies and the put spread (which I established today on the above position) during pullbacks in order to extend my profit range to approximate the standard dev range of the OEX while maximizing my credits.

Regarding whether I'm associated with a prop firm, the answer is no. I trade my own capital, which is sufficient to allow me to pursue this strategy (complemented with some other gamma positive approaches) in enough size to enable me to pay the bills and feed all the hungry mouths around here. I have accounts at a few retail firms, but Think or Swim is my preferred broker for iron condors/albatrosses and other complex strategies, primarily because they understand the actual risks involved and thus require margin on only one side of an iron condor while allowing one to apply the combined credits against the required margin.

Regards,

HD
 
HD,

Thanks for the explanation. I know about the Think or Swim platform and think it's pretty good. I don't quite understand how they figure your margin. It sounds like you're in a regular reg T account but they allow some cross margining of positions based on the credit side. Just in case your interested, because you sound like a sophisticated trader, my firm offers margin based on Risk, rather than Cost. This is very similar to exchange member margin, or "haircut". We look up 15% and down 15% looking for your maximum loss potential, and that is the capital required to hold the position. And we cross margin stock and options, looking at the entire position's risk up or down 15% and again thats your capital requirement. It ends up being much more leveraged or lenient than a reg T account. There are some very significant tax advantages also (60/40 capital gains exclusion, for example.) It is modeled after the treatment that market makers receive. If you're interested, let me know or just ask some questions and I'll be happy to answer. Oh yeah, we use Kawabunga as a stock and options platform, which is ABN Amro's front end. It is quite excellent.
Best regards,
Keith
 
Praetorian,

Since it's a 10-point spread, the 4.5 credit requires 5.5 margin per spread. Yes, that's just for November (I only put these on with 45-25 days to expiry to maximize theta decay). For October, I wrote my call spread when the short calls had a higher delta than I usually do and thus got a bigger net credit. Specifically, I did a 480/490/520/530 iron condor and received a net credit of $6.40, which required margin of only $3.60 per spread. However, I chickened out a bit early on expiration day in light of the too numerous to count end of day rallies the past few weeks, and bought back the short calls for $1.00 early Friday afternoon. So the net result was a $5.40 profit on the trade.

Regards,

HD
 
Keith,

Yeah, it's a regular ol' Reg T account. So I've no doubt the margin requirement is greater than what you describe. As such, I'm definitely intrigued and would be interested in learning more. However, though I've read a bit about them on the ET boards, I really have no idea how Prop firms work, the pros/cons of associating with them vs. trading one's own capital (there are always cons, aren't there), and how the risk-based margining works in practice. My trading experience has been completely limited to the retail world, having over the years had accounts at and traded through both the know-nothing, exorbitantly priced full-service firms (Goldman, Lehman, SSB) and the know-nothing, somewhat more reasonably priced discount firms (though I will exempt TOS and Optionsxpress from the "know-nothing" descriptive). So I confess my ignorance.

Unless others here are interested, perhaps we should continue this discussion through PMs to avoid transforming the thread into something beyond it's original scope.

Regards,

HD
 
You must log in or register to reply here.
Back
Top