Trading Long Straddles

Quote from falconview:

Having failed at credit spread trading, Gap trading and straight buying of options. I´m now trying LONG STRADDLES in options. Got one week in it now, but probably run through the month. Any body got any advice on making money with lONG STRADDLES?
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I would only do this strategy for stocks that are going to report earning soon or if the market is extremely volatile. Otherwise you will get eaten up by buying premiums that decay. I noticed you said that you didn't do well trading credit spreads. Remember when doing credit spreads you need to choose stocks that are trading in a range. e.g., Coke "KO", msft, intc..... is a stock that works pretty well because it tends not to move a lot and you can easily collect the premium in the last three weeks of expiration. Remember you will not get rich doing this but it will provide a steady income for you. While your doing this strategy you wait for possible breaks outs that you can actually buy call or put options on and they will be funded through your credit spread trading.

Remember trading is like baseball your hoping to hit a lot of singles and every once in awhile you will hit a home-run.
 
To the new contributors. Thankyou very much for your advice and interest.

Okay! I got to look up the PUT backspread, volatility, explanation.

The strategy is to have a long straddle, and if it trends, for the CALLS side, then drop the PUT and re-open, buy the PUT at a lower STRIKE. That presumably means a cheaper PUT?

Not sure how this works in the premium prices or with profits?

I did notice that the PUT increased enough in premium to more or less negate the returns in the Calls. Just letting it run as a straight Long Straddle.

Will try again later. I have figured out another idea, so will try that as well.

Again thankyou to the contributors. I still chuckle over the Mother Bear and Cubs analogy. Don´t know how to apply it though.
 
Eaudamon

Don´t know quite where I went wrong on your spread trade advice. Maybe you can clear me up on a couple of things. I was re-reading your print out this morning in my hammock on the verandah, waiting for the sun to come over the ridge.

Your item 3 You state to DOUBLE THE RISK at point 2.

I take that, you mean to either buy more PUTS, or buy another straddle.

According to the explanation I have read on the internet, it says to close the PUT and open another PUT one strike further down. With your DOUBLE THE RISK, I´m not at all clear what happens at this point 2 in your explanations. Can you clear up that point please?
 
Okay I got a reversal signal for the trend. For the Long Straddle.

I closed the CALLS and kept the PUTS of the Long Straddle. Then I went out one strike cheaper, as in the CALL BACKSPREAD, volatility instructions and bought a replacement order of CALLS at a cheaper price.

Be interesting to see what happens? This is on paper. I´m not sure yet what doubling your risk means? As Eudamon explains it. The CALLS alone didn´t make much, only $20 net after commissions.
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The straight buy in CALLS was closed for +$84 net after commissions and I bought 2 Aug PUTS 129 at $3.40. Here I am more interested in seeing if my new indicator actually makes trend reversals obvious. Other than that, the lessons for today are to observe the a) trend, the b) backspread trade and the c)straight trade. Oh yes! Sometime today I have to put on a Long Straddle for Fortis Fortis and see how that goes? As in a volatility play I guess? Think I will do that in five minutes.
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Try to think of the backspread as a whole unit. When it goes to point 2, it is moving towards the lowest price point (of the whole unit) and in the intended direction of the "kill", there you double your holdings of the whole unit. Legging out, etc is making things complex, and always changes the risk profile. If that's what you want, go for it, else keep it as a unit: You have your bodyguards, your flanks, and yourself with the rifle. Why fire the bodyguards in the middle of the firefight?.:confused:

Also try to think on your returns as a % of total risk taken, instead of $ and cents.
 
Eduamon

I´m still not clear, but thanks for the reply. You mean buy another straddle? DO not do, like the explanation on the internet says, by buying just more puts?
 
Yes. Enter another unit. Most times you receive a credit too, so "buying" isn't entirely accurate.

If your max risk was R, then double the max risk at point 2, and enter an appropiate additional number of units. At that point you have maximum risk, but also maximum flexibility.:cool:

You will only lose big if price stays exactly at point 2, frozen in time. So choose your spots for point 2 wisely.:p
 
Thankyou! Sometimes I don´t get the jargon used by professionals.

I don´t know what the market is doing this morning. It is staying static with my indicator, though early about 20 mins into the day, it said down. Then later it returned to static. Sideways in the up direction. I learned I should wait for the hour to pass, as I am trading hourly and cannot rely on the indicator if I do it out of context part way through the formation of an hourly bar. Gave me a scare.
 
Eudamon

Been thinking about your method. Essentially, since you are not adding a PUT, then it is not a PUT BACKwhatever, as described.

Since you are just aiming for point 2, which seems to be the idea here and the most difficult part and buying another STRADDLE, then basically what you are doing is AVERAGING LONG STRADDLES. After some thought, even that seems to be a good thing, if you get some market movement and I presume even though you are trying to get the bottom of a retraction, or pullback in a bull trend in this example, it doesn´t seem like it would really matter, because it is non directional and is a STRADDLE, so long as you get the market to move enough. In the SPY I am guessing this would be two strikes.

Speaking of small profits. One of my trades made only $20 and I was thinking what a lot of work. But again your percentage thinking turns out this $20 is a 3% net return on $600 capital invested for not more than 2 or 3 days. That is certainly something to think about there. As good as credit spreads, a whole lot cheaper for risk capital and faster returns.

Ahh well! They say you won´t know until you try it. Paper trade for a bit, couple of weeks anyway and see where this leads.
 
Quote from falconview:

Eudamon

Been thinking about your method. Essentially, since you are not adding a PUT, then it is not a PUT BACKwhatever, as described.

Since you are just aiming for point 2, which seems to be the idea here and the most difficult part and buying another STRADDLE, then basically what you are doing is AVERAGING LONG STRADDLES. After some thought, even that seems to be a good thing, if you get some market movement and I presume even though you are trying to get the bottom of a retraction, or pullback in a bull trend in this example, it doesn´t seem like it would really matter, because it is non directional and is a STRADDLE, so long as you get the market to move enough. In the SPY I am guessing this would be two strikes.

Speaking of small profits. One of my trades made only $20 and I was thinking what a lot of work. But again your percentage thinking turns out this $20 is a 3% net return on $600 capital invested for not more than 2 or 3 days. That is certainly something to think about there. As good as credit spreads, a whole lot cheaper for risk capital and faster returns.

Ahh well! They say you won´t know until you try it. Paper trade for a bit, couple of weeks anyway and see where this leads.
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Is the $20 net commissions? Also, did you adjust the price to a realistic fill? TOS papermoney puts on a trade without any slippage so make sure you factor that in. A backspread is different from a straddle and is less short theta (the option sold helps to pay for the two long options). It is primarily directional (you can put on for a credit but that credit typically won't be realized until close to expiration which opens up more risk if held unless the market has run away from the short).
 
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