stradles vs. strangles

barney_collier · Dec 28, 2005

Quote from horribilicus:
Easiest of all, is to sell a pair of credit spreads: one with puts (a "bear vertical spread") and, simultaneously, another with calls (a "bull vertical spread"). This is a tradeoff: much greater safety, but smaller payoff. YMMV. IMHO.

Quote from optioncoach:
If you are going to sell premium through straddles or strangles, better off limiting the risk of this approach and doing Iron Condors (sell strangle and buy further OTM strangle).

Perhaps the optioncoach can tell us the difference between these two ideas.

40yotrader · Dec 28, 2005

If I expect the volatility to increase but without any directional bias I'd buy a straddle (correct?). If so, should I buy slightly out of the money or slightly in the money options to maximize the strategy. I'm assuming a holding period of one day.

RichardRimes · Dec 28, 2005

Hi SS I'm interested in why you say be careful abt selling 4-5k per 100k...are you speaking about selling the straddle/strangle or is this a general recomendation which would include the IC...say on the spx. Straddle/strangle... I guess you would be hedging with stock whereas the IC on the spx you are hedging with spread..(thinking out loud here)

Quote from smilingsynic:

Do not go hog wild on margin. I would be wary about selling more than 4-5K in premium per 100K.

I sell index premium (ES or NQ). I sometimes will sell otm puts on stocks I would not mind owning.

If the straddle goes against me I will hedge by buying/selling the underlying. I generally do not roll up/down.

ludmil · Dec 28, 2005

Quote from DonnaV:

Hi SS I'm interested in why you say be careful abt selling 4-5k per 100k...are you speaking about selling the straddle/strangle or is this a general recomendation which would include the IC...say on the spx. Straddle/strangle... I guess you would be hedging with stock whereas the IC on the spx you are hedging with spread..(thinking out loud here)

hi was reffering to his previous post-see p.2

ludmil · Dec 28, 2005

Quote from smilingsynic:

I have sold straddles and strangles intermittently over the last three years. I sell only when I see vol either going nowhere or down (I don't sell every month). I have also sold otm puts when I do not mind if I were forced to buy the underlying.

I have soundly beaten the market, but selling vol is psychologically difficult if you do not like being wrong. One MUST be prepared to hedge, and to get chopped up when what appear to be newly trending markets go back to being trendless (right after you hedge).

I prefer selling straddles because of better liquidity and less risk in terms of a gap move. I do like to sell otm puts on indices and etfs to take advantage of the skew, but I keep gtc stop orders to protect myself (I do not trade for a living--I am an academic)

I keep a large cash reserve, because I do not want to be one of those losers who like Icarus flew too close to the sun of gamma and vega and then watched their accounts melt away and plunge. The mythological Greek Icarus would have sold as many straddles as his account would bear, cleaned up for six months, and then lost it all and more in a week.

I try to grind out a small profit every month while looking out for danger. Dull, but it works (usually) for me.

It is one of the most difficult ways I know to make an easy buck.

that's my intention too-small profits often.but everything lower than 20-25% per year is not enough-i made 15% only with stocks the last 5 years!
by how much have you beaten the market these 3 years?

El OchoCinco · Dec 28, 2005

Looks like we were both referring to the same thing, both describe Iron Condors which are a lower risk alternative to selling straddles but still risky if you poorly manage your margin and strike selection.

Quote from barney_collier:

Perhaps the optioncoach can tell us the difference between these two ideas.

ludmil · Dec 28, 2005

Quote from optioncoach:

Looks like we were both referring to the same thing, both describe Iron Condors which are a lower risk alternative to selling straddles but still risky if you poorly manage your margin and strike selection.

is it a good idea to make the iron condors diagonal(buy the hedge long term) if you intend to trade this underlying for longer time?this should increase the profitability!

smilingsynic · Dec 28, 2005

Quote from DonnaV:

Hi SS I'm interested in why you say be careful abt selling 4-5k per 100k...are you speaking about selling the straddle/strangle or is this a general recomendation which would include the IC...say on the spx. Straddle/strangle... I guess you would be hedging with stock whereas the IC on the spx you are hedging with spread..(thinking out loud here)

I am talking about naked selling. If I do iron condors/butterflies I will try to buy the wings some time (days, weeks) AFTER selling (in other words, I leg in). In other words, I might start with a straddle and convert to flies, or, if the position goes against me, hedge.

I do not do bear call/bull put spreads (credit spreads). I do not think selling cheap gamma is prudent.

riskarb · Dec 28, 2005

momoneythansens · Dec 28, 2005

It can be more profitable if you pick the right strikes for the range if you are able to predict that far into the future. However, you will not normally be able to put on the double diagonal for a credit unless you are adept at legging in or there is a large enough vol differential in the term structure (but there is normally a reason for this), so the profits come from rolling front month options successively.

You may also find that you will have larger margin requirements in order to have wing strikes in the back month that fit your criteria.

The double diagonal has two calendars and two verticals embedded in it so it behaves a little differently to a standard iron condor. It is long vega courtesy of the back month wings.

MoMoney.

Quote from ludmil:

is it a good idea to make the iron condors diagonal(buy the hedge long term) if you intend to trade this underlying for longer time?this should increase the profitability!