Trading Long Straddles

Riff raff
Well indeed! That is food for thought.
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Hey babu how u doing mon? Wrong forum no?:D

Okay Riff Raff, you certainly produced some interesting stuff.
Have no idea how you could get those premiums and dates together like that. How did you do it?

The March 20, 4.70, then April 4, 4.30, then April 10 4.45 was very interesting. Not knowing how you could acquire that info. I can only applaud.

I kind of know the spread will gyrate. As the market goes up and down in small gyrations. I´m aware if one waits long enough to get a directional monthly move in one direction including the gyrations, it will evenually profit. At least from my limited experience. When many months ago I tried overlapping straddles, I noticed that. But that didn´t change the fact that eventually the market would start gyrating in a longer direction, making the monthly bar. In the months I tried that, it always eventually gave me a profit. The time waiting was the only variable really.

It is your next post about reducing the TIME FRAME, to remove premium and a jump in the spread of a weekly that I found more interesting. As you said, THETA would be a big effect in a weekly trade. So what conditions set up for you to get that jump in volatility would be interesting to know? That sure sounded like a risky trade? Probably an hourly trend for four hours? You can predict those, so it raises interesting possibilities if one knew the specific conditions necessary to take the gamble. I think I´ll look for that in the weeklies and paper trade some ideas to see what happens. Unless you can offer the specifics?

The intra-day business is because my account is too small. I´m allowed about one, perhaps at a pinch two day trades in a five day period.

There must be a specific unique situation to be able to put a straddle on, in a day trade during a high THETA environment ? What was the specific situation? Curious minds would like to know.

Babu your commentary is scary. But so far, I´ve never lost on a straddle. So while your comment is scary, have to stick it out for now. I´m working on diddling with the straddle to get some oomph out of it. Have to try this in the real money world. So will go through with it.
 
Quote from falconview:

Riff raff
Well indeed! That is food for thought.
_____________________

Hey babu how u doing mon? Wrong forum no?:D

Okay Riff Raff, you certainly produced some interesting stuff.
Have no idea how you could get those premiums and dates together like that. How did you do it?

The March 20, 4.70, then April 4, 4.30, then April 10 4.45 was very interesting. Not knowing how you could acquire that info. I can only applaud.

I kind of know the spread will gyrate. As the market goes up and down in small gyrations. I´m aware if one waits long enough to get a directional monthly move in one direction including the gyrations, it will evenually profit. At least from my limited experience. When many months ago I tried overlapping straddles, I noticed that. But that didn´t change the fact that eventually the market would start gyrating in a longer direction, making the monthly bar. In the months I tried that, it always eventually gave me a profit. The time waiting was the only variable really.

It is your next post about reducing the TIME FRAME, to remove premium and a jump in the spread of a weekly that I found more interesting. As you said, THETA would be a big effect in a weekly trade. So what conditions set up for you to get that jump in volatility would be interesting to know? That sure sounded like a risky trade? Probably an hourly trend for four hours? You can predict those, so it raises interesting possibilities if one knew the specific conditions necessary to take the gamble. I think I´ll look for that in the weeklies and paper trade some ideas to see what happens. Unless you can offer the specifics?

The intra-day business is because my account is too small. I´m allowed about one, perhaps at a pinch two day trades in a five day period.

There must be a specific unique situation to be able to put a straddle on, in a day trade during a high THETA environment ? What was the specific situation? Curious minds would like to know.

Babu your commentary is scary. But so far, I´ve never lost on a straddle. So while your comment is scary, have to stick it out for now. I´m working on diddling with the straddle to get some oomph out of it. Have to try this in the real money world. So will go through with it.
More...

TOS platform--- thinkBack feature. In minutes u can analyze it. On Demand replay will let u replay tic by tic too.

Tied up now-- will post more soon.
 
I´m holding 5 contracts QQQ July 66, straddle at a spread of $5.07

Actually I don´t plan to trade the spread itself, but the wings or whatever you call the sides of the straddle. The last and only time I did that with real money, it worked like a charm. There is apparently an element of LUCK in this, so doing it real time is my effort to figure out how to do it right. See if it can be repeated?

I do thank one and all for the concrete commentary, that one can use.

It is hard to try and figure out real world happenings from some of the posts on elite trader, because many of the writers do not explain how they have arrived at conclusions, or advice. Riff Raff you did it right. Again thankyou!

I´m still wondering how, so many grown men can be sitting on a Sunday at their computers when it is not a trading day and at least here on a Sunday, with bright sunshine, and warm trade wind. :)
 
Quote from falconview:

I´m enamored of strangles and straddles. I´ve heard from two people who are making money at it. So still seeking the TRADE SECRETS of how to do it.
Far as I can figure, there is the standard way and a second way. The standard way earns about 3% a month net. I´m not finished experimenting with the second way yet. I´m still trying to fix it with bells and whistle, tweeks and stuff. But figure it should return 10% a month. Much of the criticism coming in, apparently is because people are trading front month and second month options in a straddle or strangle. I´ve learned you need to trade 90 day straddles or strangles. I´ll at least pass that on to you. ( GRIN )
The big thing with this type of trade, is there is NO RISK. Very slow conservative, neutral strategy. Takes about two weeks to a month, depending on market movement via lady luck, to work your way of a strangle or straddle.
I´m in a big cash straddle right now, ( for my current account level ) to see how my theory works out in reality. Done some straddles before but the old fashioned way. They work but very slow.

I am also doing a lot of experimental paper trading on many other classical strategies. They do make money. But there is alway some RISK. That is the difference between anything else and the NO RISK straddle/strangle. Other strategies mostly to do with selling premium, have to consider risk and so they trade a smaller portion of their equity account. These make more money, faster, but carry risk. Because of the trade off, between RISK strategies seems to be a balance of trading smaller, it takes longer to increase the equity balance. I´m getting into my theory implications here right now, as empirically I am in the process of doing it and no hard results in hand.

Listening to reports on here, about results for annual RETURN ON INVESTMENT ( ROI ), I hear people claim anywhere from 30% to 300%. Larger returns carry more risk and often blow up, they certainly have drawdowns and losses. The MARKET WIZARD book claim a 40% return ROI for a year, is a top reward ratio to shoot for. One correspondent friend claims a 60% return per year, ROI.

The trade off for a straddle / strangle seems to be NO RISK, vs RISK, but higher reward by anything else. I´m a novice amateur so my thoughts are not necessarily correct here. Take WARNING!
My thinking, not yet backed up by real life, is that a straddle / strangle can return 30% to 100% per year on your equity balance. The trade off balancing act is that with a NO RISK strategy, you can trade ALL your account each time. What we call COMPOUNDING. Whereas those that are claiming 50% or so ROI, have to allow for RISK and trade smaller amounts of their accounts, to cover losses.

I´ll toss those speculative thoughts out for comments. This is at the moment only theoretical thinking and I´m just starting on the process of proving I´m right with REAL MONEY TRADING. The FUTURE KNOWS. I´d love to start with a $200,000 in a NO RISK STRATEGY, because you probably could live off it as income?
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Falcon,

When you talk about "annual returns on capital" you will discover that it doesn't mean the same thing to any two traders. Why?

Because lets say "Trader A" starts with a very small account ($5,000) but every trade he executes he uses $2,000 per trade
(40% of his account), and lets say he's lucky enough to return a $5,000 profit by the end of the year. That's a 100% return on his account. Right?

Now lets say Trader B has a $20,000 account and he also uses
$2,000 per trade (10% of his account) and he also returns
$5,000 profit by the end of the year.
That's a 25% return on his account. Right?

You see, talking about annual returns is meaningless unless you have well defined and widely accepted and recognized parameters for "investment per trade with respect to account size." (Acceptable risk per trade based on account size that is widely accepted in the investment world).

Jeff
 
Quote from falconview:

I´m holding 5 contracts QQQ July 66, straddle at a spread of $5.07

Actually I don´t plan to trade the spread itself, but the wings or whatever you call the sides of the straddle. The last and only time I did that with real money, it worked like a charm. There is apparently an element of LUCK in this, so doing it real time is my effort to figure out how to do it right. See if it can be repeated?

I do thank one and all for the concrete commentary, that one can use.

It is hard to try and figure out real world happenings from some of the posts on elite trader, because many of the writers do not explain how they have arrived at conclusions, or advice. Riff Raff you did it right. Again thankyou!

I´m still wondering how, so many grown men can be sitting on a Sunday at their computers when it is not a trading day and at least here on a Sunday, with bright sunshine, and warm trade wind. :)
More...


cause i'm at work.

i'm still a little confused though. can you explain more by what you mean by these "wings"?

when i think of a basic straddle i think of a long call and a long put of the same strike.

do you mean that when the call goes in the money you sell it and then wait for the market to trace back the other way and sell the put, and vice versa?
 
Quote from hoop121:

cause i'm at work.

i'm still a little confused though. can you explain more by what you mean by these "wings"?

when i think of a basic straddle i think of a long call and a long put of the same strike.

do you mean that when the call goes in the money you sell it and then wait for the market to trace back the other way and sell the put, and vice versa?
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A more accurate description of what he is referring to is legging out.

Most of the time one side will be ITM...the key for success however is determining at what point has price made a significant move in one direction where a significant technical reversal is imminent..as opposed to a mere pause at short term support/resistance before a resumption of the prevailing trend...much easier said then done.

This is where trading intraday weeklies become more attractive as well near expiration when using a leg out approach. Since premiums are so low, it doesnt take much of a move for one side to appreciate to the total cost of both sides... If this hapoens let's say with an overshoot of a bband into supply...its a no brainer to sell the call...the retreat back to the mean will be additional profit on the free put u own.

Take a look ar bidu on fri at open-- price came down to 145...the straddle was 1.25...within minutes the call was 1.19 bid...put at .44 bid. If u sold call at resistance u wulda picked up another .20 or so on retreat back down. Or u simply say im up 30% on whole position in a few mins time- close both sides and move on.
 
Quote from Riffraffpatrol:

A more accurate description of what he is referring to is legging out.

Most of the time one side will be ITM...the key for success however is determining at what point has price made a significant move in one direction where a significant technical reversal is imminent..as opposed to a mere pause at short term support/resistance before a resumption of the prevailing trend...much easier said then done.

This is where trading intraday weeklies become more attractive as well near expiration when using a leg out approach. Since premiums are so low, it doesnt take much of a move for one side to appreciate to the total cost of both sides... If this hapoens let's say with an overshoot of a bband into supply...its a no brainer to sell the call...the retreat back to the mean will be additional profit on the free put u own.

Take a look ar bidu on fri at open-- price came down to 145...the straddle was 1.25...within 1 minite the call was 1.19 bid out .44 bid. If u sold call at resistance u wulda picked up another .20 or so on retreat back down. Or u simply say im up 30% on whole position iin 3 mins-- close both sides and move on.
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ok, that's what i thought he was talking about.

this defeats the purpose of the spread, though.

why not just wait until a significant where you think a reversal is significant and then purchase play it that way? by buying the straddle and waiting for the move you risk losing the premium on both of them where as if you just wait to bet against a move you will only lose premium on one of them if you are wrong.
 
Quote from hoop121:

ok, that's what i thought he was talking about.

this defeats the purpose of the spread, though.

why not just wait until a significant where you think a reversal is significant and then purchase play it that way? by buying the straddle and waiting for the move you risk losing the premium on both of them where as if you just wait to bet against a move you will only lose premium on one of them if you are wrong.
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The logic makes sense until u look at what typically takes place. I want to be in prior to a big move...if a move has already taken place and then u get in, u may not get much of a retracement...and unless markets are screaming a slow drift upward for the rest of day is not uncommon. Since u r always entering atm- this will kill your premiiums on both sides. Im typically looking to a directional deep ITM option w/ .9 delta or higher for the reversal with a tight technicsl stop instead at that point. Not worried about theta or vol decay at that point.
 
Quote from Riffraffpatrol:

The logic makes sense until u look at what typically takes place. I want to be in prior to a big move...if a move has already taken place and then u get in, u may not get much of a retracement...and unless markets are screaming a slow drift upward for the rest of day is not uncommon. Since u r always entering atm- this will kill your premiiums on both sides. Im typically looking to a directional deep ITM option w/ .9 delta or higher for the reversal with a tight technicsl stop instead at that point. Not worried about theta or vol decay at that point.
More...

Btw i am posting in between sets at the Y lol. The workout goes much faster this way...ironically lol
 
Riff Raff has it almost right.

Since I´m developing this in my own mind. I´m playing with variables. I don´t know the technical lingo to call it, or explain it. Perhaps Babu with his expertise in GREEKS can put it into Greeks.

Really I´m sort of using a trending approach to trading the straddle. With order flow, volume and volatility thrown in. It has nothing to do with the spread. The straddle is just the framework to work with and a starting point. I figure three moves should see my straddle finished and out.

Just got back from my swim at the beach. Nice day indeed.
 
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