Short-Term (0-1d) Straddling

S

shortorlong

I'm looking at straddles as a daytrade mechanism (sometimes only a few minutes in length, upto a few hours).

I wonder, what are some characterstics / signals for the underlying stocks that you would look for to find candidates.

I'm thinking of the following so far:

1) Price change over small time period (5 minutes)

2) Low implied volatility (is this good or do I want high? I'm thinking low for sure)..


3)?


What other characters in combination for the underlying would suit?
 
Quote from shortorlong:

1) Price change over small time period (5 minutes)
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I don't know what kind of a price change you're expecting in a few minutes or hours, but I can't imagine it would be enough to make a straddle profitable.

ATM straddles are initially delta-neutral, which means they're slow out of the gate when the stock moves. Even when you get farther from the money, you don't have a whole lot of delta to start with. Also, you'll have a dime or two of slippage on each leg. You're probably looking at a move of 50-60 cents or more just to break even, all told.

If you know a stock is going to move that far in that short a time period, but you still can't pick the direction well enough to trade the stock long or short, I'd love to know where you get your predictions from.
 
I'm still new at this but what I wanted to do was find a way to play volatility.

I see daytraders range-trading throughout the day on high-volatility. The extra volatility allows the swings to be wide enough to beat the commission/spread.

Since my account is still very small, I wanted to look at leveraged volatility plays, to get bigger swings to beat the commission more. That led me to options, and specifically straddles / strangles.

So, the (very basic) premise is that instead of buying 1000 share lots of stocks and trading on the pennies (which I can't do), I could perhaps use option leverage to beat the commish.

No good?


I guess I could abandon straddles, and try a daytrading option strategy with straight puts/calls (this is more similar to what I see daytraders doing with equities - only one direction..)
 
Short,

One thing you can do is put on a straddle in a name before they announce their earnings. You can look at past earnings history data and see how much it moved on average (giving more weight to the recent moves).

Then evaluate the industry and see how other names have been moving in the current earnings period. Try to find highly correlated stocks with the one you're looking at it and see how it moved on earnings.

If you pick the good ones, you can make an absolute killing. The caveat is that if it doesn't move on earnings, you'll get smoked (lose a ton of premium). So be careful, its not for the faint of heart.

Quote from shortorlong:

I'm still new at this but what I wanted to do was find a way to play volatility.

I see daytraders range-trading throughout the day on high-volatility. The extra volatility allows the swings to be wide enough to beat the commission/spread.

Since my account is still very small, I wanted to look at leveraged volatility plays, to get bigger swings to beat the commission more. That led me to options, and specifically straddles / strangles.

So, the (very basic) premise is that instead of buying 1000 share lots of stocks and trading on the pennies (which I can't do), I could perhaps use option leverage to beat the commish.

No good?


I guess I could abandon straddles, and try a daytrading option strategy with straight puts/calls (this is more similar to what I see daytraders doing with equities - only one direction..)
More...
 
You could focus on earnings announcements, Fed Funds rate announcements and option expiration when premium decay is likely to be highest.
 
Quote from nazzdack:

You could focus on earnings announcements, Fed Funds rate announcements and option expiration when premium decay is likely to be highest.
More...

or a combination of them 1) close to option expiration + 2) major news (fed announcement or company earning)

but it's still one of those strategies where you take many small losses for a few big wins.

You should get a very good idea and come up with a stop loss (or profit taking) plan by watching the AH actions following the major news release on the day it was announced
 
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