Short term Straddle

M

metotron

Hi all!
I'm almost '0' in options trading, so need some advice from our community.
I have a strategy that works only "long" and has around 67% profitable deals. Average profit 1.6%, average length - 3 days. Enter is on opening (first 5-15 min) and close around 3:45pm
There is around 50% chance that first day will be down day. So I can buy not on open of the first day but on close (if it is red) and get almost the same result. The same because if the price goes up from opening it has higher profit.

So I have an idea that 50% of the red day should be used for profit also and maybe the better idea here is to buy Straddle on opening and close put leg at the end of the first day (and maybe add more to call or just keep profit). Or buy put on open and underline stock (strange idea but who knows)

But as I mentioned earlier, I have no experience in the options and I would like to ask:
1. which risks should I expect
2. which parameters should I use (Strike price, delta etc)
3. maybe there are some "useful" resources where I can find some helpful info
4. or maybe it is a stupid idea?

Thanks!
 
1. you mean real entry and exit prices for some stock? if yes, I can do it today later (i'm out of home now)
2. could you clarify here a little. Do you mean create the straddle buying both legs separately or going only with calls or only with puts?
 
metotron said:
1. you mean real entry and exit prices for some stock? if yes, I can do it today later (i'm out of home now)
More...


  • Yes ..... it helps when real quotes are used, instead of a hypothetical situation with XYZ.


metotron said:
2. could you clarify here a little. Do you mean create the straddle buying both legs separately or going only with calls or only with puts?
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  • No straddle.
  • Just buy a call or put - not both.
 
1. ok
2. but the idea was to catch the move in both directions. so does it means that stocks + buy puts is the better idea?
 
Between the B/A spreads on two legs and 3 days of time decay, you're not likely to see much of a gain, if any on a 1.6% move in the underlying.

As Ox3 suggested, post an example with real quotes. Modeling that would give an idea of P&L
 
metotron said:
Hi all!
I'm almost '0' in options trading, so need some advice from our community.
I have a strategy that works only "long" and has around 67% profitable deals. Average profit 1.6%, average length - 3 days. Enter is on opening (first 5-15 min) and close around 3:45pm
There is around 50% chance that first day will be down day. So I can buy not on open of the first day but on close (if it is red) and get almost the same result. The same because if the price goes up from opening it has higher profit.
More...

The reason you get the similar result by doing your trade at the close instead of the open, is probably because it doesn't matter in the long run. You don't know in advance if today we're going to be up or down... so in effect, your trade-on-close is basically very similar to trade-on-open.

Isn't your strategy profitable just because we're in a bull market? 2/3 profitable trades and only "works" long... o_O

Anyway, back to your options query.

A long put with long stock, giving a zero delta, is basically the same as a straddle... well, half a straddle.
2 puts + 100 stocks = 1 call + 1 put
2 calls - 100 stocks = 1 call + 1 put

All greeks will be the same, and payoff as well... and therefore, the price is also the same. So, unlike @OptionsOptionsOptions says... the price of a straddle position isn't really more expensive than a put or call position... at least not when you want the same outcome. You just need to buy 2 puts or two calls... which will be the same as 1 call and 1 put. (assuming margin for stock purchase/
 
metotron said:
So I have an idea that 50% of the red day should be used for profit also and maybe the better idea here is to buy Straddle on opening and close put leg at the end of the first day (and maybe add more to call or just keep profit). Or buy put on open and underline stock (strange idea but who knows)
More...

I doubt this will make much difference in profit. Do you close the put as well after an up-day?

In the end, I think you will not make much doing this, since you will lose on theta (time decay)... and the underlying move is likely to even this out in the long run... basically giving you zero profit. The only way this works IMO, is because you keep the call and rely on a bit of upward momentum... basically ending up in a long momentum strategy.

Again... makes sense this makes you money in a backtest, since we've been in a bull market for the past years.
 
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