Straddles, are they ever profitable?

[El OchoCinco]

I think Cottle looks at synthetics to explain similar positions and risk profiles but I am not sure he would advocate a generality that a synthetic would always perform better than the real or vice versa. as a former market maker I am sure he made a lot of money using synthetics to lock in small price differences with his market maker margins/costs/abilities but those are the only people that can do that.

 

[OddTrader]

To be, not to be:

Pizza shop staff: How many pieces do you want to cut it, 12 or 8?

Lady customer: Oh no, not 12! Too many I can't eat so many! 8 just fine, I can finish all!

http://www.elitetrader.com/et/index.php?threads/jokes-2.93321/page-1367#post-4299423

 

[shodson]

I've recently started selling straddles right before earnings announcements. Here are my results so far

I have a few rules
1) I only sell contracts that expire the same week as the earnings announcements
2) I only sell the front month
3) the implied vol on the front month must be at least 50% greater than the next expiry after it (I want to see skew)
4) enter before market close, sell the next morning
5) as usual, i want a relatively tight bid/ask spread so I can easily get out
6) do these with small percentage of your portfolio/margin, these have unlimited risk

 

[CBC]

So you say your holding the straddle over expiry shodson?

 

[shodson]

no, holding 1 night only (through the earnings announcement) - sell the straddle before earnings, buy it back the next morning after earnings

 

[CBC]

no, holding 1 night only (through the earnings announcement) - sell the straddle before earnings, buy it back the next morning after earnings

What could possibly go wrong shodson?

 

[shodson]

MU moved 10% and I still made money. You're selling a vol crush. It'd have to make some pretty big moves to take a big loss, but it can happen. Always remember: "anything can happen." That's why you have to play these small.

 

[TradeCat]

With this thread I wanted to focus on BUYERS of straddles. So far I haven't seen anything that says that small retail investors as BUYERS of straddles can be consistently profitable.

 

[OddTrader]

Perhaps check page 170:


Chapter 8. Don't Just Stand There, Do Something: The Straddle.
Chapter 9. Don't Just Do Something, Stand There: The Strangle.

 

[Kibitzer]

With this thread I wanted to focus on BUYERS of straddles. So far I haven't seen anything that says that small retail investors as BUYERS of straddles can be consistently profitable.

I have been long straddles as a stand-alone position for earnings play, when I thought the move was going to be greater than the cost.