Trading Long Straddles

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I think I may have a wrong view on Friday Expiration long straddle trades, but not sure. Maybe you can clear it up. Usually by 10 a.m. or so, the losing side has a value of .00. While the winning side is showing some intrinsic value I guess? Which is the profit. Are you letting the long straddle in such a case go through expiration? That point I cannot visualize.

I know what happens in a credit spread doing the same trade on expiration Friday. If you are neutral, you let it go to expiration, but if you are losing, you close it out.

The question is that I am not sure what to do about the Long Straddle, a different fish. It looks to me you are letting it expire? Is that right?
 
Quote from falconview:
sle
As to the second comment, I´m doubting that it is a THETA problem with 6 or more weeks to go on a straddle. Have no way I can view that in a graph as my skill set does not yet lead to that. I do believe it is the dropping IV.
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Well, it certainly could be, but beware that a drop in VIX does no nessesarily mean that implied volatility has dropped (in fact, sometime you get both a decrease in VIX and an increase in fixed strike implied vols). Also, you have to realize that theta and gamma are the two sides of the same coin - if an option has little theta, it also means that it's not going to respond as aggressively to the change in underlying value.
 
sle interesting.

I think I want to know what happens to a long straddle on Expiration Friday. One side goes to .00 usually by 10 a.m. my time. Probably 11 a.m. NY time.

If you don´t close out the long straddle before market closes, do you lose the intrinsic value in there, or is that settled on Friday and they credit it to your account?

I cannot draw any conclusion from a credit spead, because that has paid you your profit in advance and at expiration, you get to keep it. In reading up, I can´t find anybody explaining this point. I think the idea I am getting is that I have to CLOSE the long straddle probably around noon on Expiration Friday, incurring at least commissions on the side with intrinisic value.
 
sle

Well I´ve been charting the GREEKS to get some idea what they can tell me with a Long Straddle.

Neither Gamma or Theta move enough to tell me anything useful The only thing useful has been the IV.

That was a useful point that IV can move independently from the VIX. Not sure how I would use it, but it is a good point.
 
OBSERVATIONS AND CONCLUSIONS

Back at the beginning of this forum, some contributors were telling me that the LONG STRADDLE was exclusively a VOLATILITY PLAY.

For a while I was thinking you could also make money off the intrinsic value. In the end, I have come to the conclusion, that to get intrinsic value enough, you can only get it through a boost in IV. Therefore my final feeling is that the LONG STRADDLE
 
Whoops got kicked out of that message while typing.

Anyway, I am convinced that the LONG STRADDLE is indeed a VOLATILITY PLAY.

Thinking that, then brings me to the conclusion, that you can try to predict a market move to anticipate the rise in IV. Or you can take a position and stand in the middle of the freeway, until you get hit by an IV semi trailer truck.

The question is now, how do you do either of these two things? Able to do it on a regular basis, say once a week.
 
Tuesday morning, the 5th of July start of new week.

Went back to an old two straddles I let ride. They were about 1.5 weeks old. Because of the run up. One earned 2.7% and the other earned 8.5%.

I found that interesting as they were about two weeks old on an 8 week out, - use of options.

Got three more long straddles to close from last week, I want to close this morning as well and see what they brought with the run up. After the market opens. It is encouraging though. These are all paper trades using real time, or as real as it gets data.

I think I´m going to have to be careful though about the cost and number of contracts. I´ve been using 2 contracts, but looks like I would have to use 1 contract, if I want to complete 3 different trades per week.
 
Welll here are the results of my training straddles done on paper, with pen, using real time TOS data from my cash active account.

10%, $28, which was a 6% return, $52 which was a 6% return, $8 which was a 1% return, $24, which was a 3.5% return and a loss of - $22 to commissions because I closed out early on Friday.

This is net, after commissions are deducted.

All these straddles and strangles were done in the last 10 days.

Food for thought there!
 
Another week has passed, with still more paper trading. Not totally settled on a strategy, or group of strategies yet.

I like very much the Long Straddle and Strangle, because you do not have to predict the market.

What seems to be cramping my style is the DAY TRADER rule. They only allow me 3 trades in a week. I´ve figured out three different strategies to trade, which makes 3 trades. It is difficult to build the strategy for long straddle/straddles with only one trade per week. I did widen the spacing, but still I can see where you are going to end up with two trades in a week, though one might not be closed that particular week. SO NEXT WEEK I move to an even WIDER arrangement in order to get only one STRADDLE per week.

I closed a STRADDLE from the previous week this week, which netted me +$88 net profit. Which was a return of 8% after paying commissions.
Then my Expiration Friday trade earned + $96 after paying commissions and becaused such trades are cheap, it turned out to be +37%. This was a learning lesson this week. What I did was wait for the market to pick a direction, then I closed the losing side. Saved .13 cents by doing that as it quickly dropped to .03 cents. The winning side went up from .83 cents to $1.30 and I closed it. So I ended up with +$96 after commissions were paid.

I took a loss on a straight CALL of -$58 including commissions. Or a minus 19%.

So the take for the week on 3 trades was + $126 in total.

This is still being done on paper with a pen, using real time TOS account option chains. I´m not too sure I´m ready yet to move to CASH TRADING. I am still getting accustomed what to expect. However, I do think I will gamble probably in another week or two.

Before I forget, I would like to give my thanks most effusively to both FOREX FOREX and EUDAMON for assisting me with understanding the Long Straddle/Strangle. There were other contributors that helped and thank you too. But these two guys really set me up with something. THANKYOU!
:)
 
The Day Trader rule limiting me to 3 trades a week is really bugging me. I find it cancels any risk control I might build in.

I was thinking today about coupling a directional trade and a straddle non directional trade in one, to evade the Day Trader rule. the trouble is, I would like to take half the trade contracts and leg them out as in closing. My question is, if I enter by buying 4 contracts as in a long straddle/strangle, then during the week, on the assumption of what I believe is a trend, close the losing side on half the contracts until the trend expires and I close the other half of that section, of say 2 contracts. Does that original BUYING TRADE as a straddle with 4 contracts, in which I have closed the original BUY of 4 contracts as a straddle, in pieces get counted as seperate trades, because they got closed in pieces? 2 contracts would be held as the original straddle, whereas the the other 2 contracts of the straddle would be closed piecemeal.

I tried TOS at the HELP desk, but they refer me to the CBOE and when I go to the CBOE, they end up referring me to somebody else, so finally I gave up in disgust. But I would really like an answer. I don´t want to get shut down for a penalty or something.

I´m building a strategy where I diversify into 3 different trades, using my existing capital. This to satisfy the Day Trader Rule. The trouble is, two of the trades require legging out, as in closing piecemeal. It would depend on how they count the 3 trades, from the BUYING standpoint, or the selling standpoint.
 
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