Short term Straddle

Hello JackRab,
thanks for your comment.
1. No, there is no any bull-market effect. I tested it on all my data (Premium data source incl Delisted) 1995-2018. Of course, it has some "bad days" but in general it shows very similar results
2. "Do you close the put as well after an up-day?" - I want to keep put only one day - the first day. If it up day - it closes with loss or if down - with profit. But I want to keep call to the end
3. There is another reason for keeping "something" from options. Sometimes the loss can be...painful (>10%). So I can use stop loss. But it can be better ( I guess) to protect the position using Put option.
But I really don't understand why I need 2 puts + 100 stocks? why not 1+100?
 
metotron said:
Hello JackRab,
thanks for your comment.
1. No, there is no any bull-market effect. I tested it on all my data (Premium data source incl Delisted) 1995-2018. Of course, it has some "bad days" but in general it shows very similar results
More...

Dude... that's a bull market... from 450 to 2700... how is that not a bull market?

upload_2018-5-17_14-45-56.png
 
metotron said:
2. "Do you close the put as well after an up-day?" - I want to keep put only one day - the first day. If it up day - it closes with loss or if down - with profit. But I want to keep call to the end
More...

Okay.... this will hardly make a difference, since usually the theta/time decay of the straddle will be roughly what you would make on any daily move, if the options are priced efficiently. Which they usually are, but even if they are not... I doubt you can make money from that intraday, especially with zero experience.

metotron said:
3. There is another reason for keeping "something" from options. Sometimes the loss can be...painful (>10%). So I can use stop loss. But it can be better ( I guess) to protect the position using Put option.
But I really don't understand why I need 2 puts + 100 stocks? why not 1+100?
More...

You don't need 2 puts + 100 stocks, I was pointing out that 2 puts + 100 stocks is exactly the same as 1 straddle.
1 put + 50 stocks is half a straddle.
1 put + 100 stocks is 1 call...

Again.. I don't think your strategy will improve with this (besides sheer luck).
 
metotron said:
i'm not sure about bull market in 2001-3 or 2007-08.
More...

Obviously not... but if you do a backtest this way... you tend to do best with a bullish strategy. And since you're stats say 67% profitable that works only long... than that's likely because of the bull market since.

How does it do during does bear markets? What results do you get in the backtest? Or sideways during Aug 2014 - June 2016?
 
The easy way to see this is to use an option pricing model. Answer available in well under a minute. If this is above your pay grade then you can do a quick guesstimation by looking at an option chain.

Find a stock that is near a strike price (so deltas approximately equal) and where your 'average' 1.6% move takes share price to another strike price, give or take. Look up the cost of the ATM straddle and compare it to the value of the straddles at the strikes 1.6% above and below. That's will be the P&L of an instantaneously 1.6% move.

For example, Visa (V) closed at $130.89 yesterday. 1.6 % of that is $2.10 so compare the ATM straddle to a straddle 2 points away. Using the respective B/A from yesterday's close for the 5/25 expiration:

$129 straddle = $2.92
$131 straddle = $2.50
$133 straddle = $2.91

Three days of time decay would cut about 30 cents of premium off this so a $2 down move nets you 12 cents and a $2 up move nets you 11 cents, before commissions.

Other expirations won't provide a significantly different result other than maybe the rate of theta decay.

Another big problem is that many of the options of your symbols are illiquid and they have Holland Tunnel wide B/A spreads. That means that they're not tradeable.

The short answer? IMHO, a 1.6% move is not enough to make any kind of decent money with a long straddle strategy.
 
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