Straddles, are they ever profitable?

[ironchef]

No. Arbitrage is a relationship that is easy to lock in and collapse. It is rare and between stuff like violations of put/call parity and yes, it will be very quickly captured by electronica market makers.

Instead, this is about the market price of risk. Implied volatility (which dictates the price for straddles) is not any different then any other risk premium in the market and there will be some equilibrium in MMs trying to figure out what it is really worth. That price is composed of two components - (a) the actual expectation of volatility and (b) the risk-tolerance of the market participants to a position.


You are thinking about this all wrong. A small retail trader has a number of qualitative edges that put him in a unique position to make money - you are small, you are not subject to regulatory bullshit, you are not mandated to trade a specific asset class etc. As they say "I'll let the reader fill in the blanks".

PS. Ashok, I have to say that http://www.key2options.com/ looks like a waste of money to me

As typical, your post made sense and helped clarified things for me.

Thank you for the coaching.

 

[Trading Education Buyer]

weekly straddles are profitable and I trade them , they offer the biggest bang for your money ,lowest cost /enough reward .

just buy under-priced straddles before a breakout set up or near breakout zones

 

[sle]

Thank you for the coaching.

Well, I got nothing to sell, sorry I'll take a beer if you are even in the NYC, but otherwise my 2 basis points are free

The second question is an important and interesting one and goes beyond option trading. Some years ago, one of my junior traders made a comment that "existence of McDonalds does not make a hot-dog stand less profitable". I think as the institutional side is getting more regulated, self-policed and benchmarked, there will be very interesting opportunities for a little guy.

 

[Trading Education Buyer]

here nice trades on dax.this is how i make money

I never get chopped out , market can never chop me.