Trading Long Straddles

Quote from falconview:


Iceman1 I´m beginning to agree with you on the differences between paper trading and real money trading. Actually I do agree with you. However, with reservations, because the paper trading allows one to familiarize with the trading platform in a new type of trade strategy. Plus I feel I get a learning experience at no cost, from the nuances involved. Agreed though, it does not translate to the real time experience. Which is why I¨ve moved rather fast from paper trading into real cash this week. With two real money trades open.

I post a lot because I´m a slow learner. Plus I´m old and forgetful. As Eudamon says and another of my friends, I over analyze. I must say Forex Forex has me worried this morning with his forecast of an UP GAP. I wanted one more STRIKE DOWN and the Point and Figure Charts, one strike box shows that is possible. You cannot forecast the market though.
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I will reply further later, but was wondering why "I'm old" and a "I'm a slow learner" are relevant.

Now, I would agree that over-analyzing is not a recipe for good trading. It means you are trying to be 100% certain before making a decision (puling the trigger wither to enter or exit) in a situation inherently fraught with varying degrees of uncertainty and risk(s), each day.
 
"Kinggyppo Last night I was reviewing the VEGA numbers and my recording, and I have come to the conclusion VEGA doesn´t have anything useful to add, to trading the long straddle. The GREEKS may have use in sophisticated hedging trades. But can´t see Vega adding anything to the Long STRADDLE. It seems to me that the number simply moves with the STRIKE. So, if you are watching the index move by bar action with the strike, what if anything new is the VEGA going to tell you? It´s the same thing, as is basically Delta moves. THETA now in short same month option trading certainly has an effect. However I´m trading 2nd and 3 rd month out. Which gives me time, but requires more of an underlying move to profit."

man you were right there, what happened....:mad: , vega is important as eudamon said. Find an options calculator and figure the price of any spy option with vol at 15 and then at 25 it makes a huge difference in the price of the option, delta and vega are completely different animals; don't make excuses, the market makers on the other side of your trades will take your money all day long if you don't know what you are doing. Just master one concept at a time. Good trading.
 
Vega

It says in my notes that VEGA is sensitivity to IV.

Where am I going wrong in understanding then? The vega number when a straddle is put on is .10 Lets say as it moves one strike in the QQQ it goes to 9. It moves two strikes down, it goes to 8.
Other than paralleling the strike, where is the increase in speed of the IV shown?

You have me curious, I´m going to browse the internet and see what I can find out.
 
Thankyou Kinggyppo for caring. I´ve book marked this IV option calculator. Will try it over the weekend.

I goofed up yesterday. In the option chain of TOS I was making a paper trade in the July Weekly. Turns out it was the wrong weekly. The first entry, which was the end of the month expiration, when they don´t label it, was the one I should have been in. I just caught on to the problem. So scrapped that lost trade. I was wondering what was the problem. I remember now belatedly, that they don´t mark the WEEKLY option in the fourth week, because it coincides with the end of month weekly. So the one I was working in, turned out to be the early part of next week´s weekly.
Wasted the morning, well part of it anyway. I´m off to run some errands downtown. Need some things instead. At least it was an experimental paper trade.

Did look up some more on VEGA. I understand what they are saying, but just can´t correlate it to what I see on the screen for the option chain. Maybe after I play with the option calculator? Thankyou again.
 
Quote from falconview:

Thankyou Kinggyppo for caring. I´ve book marked this IV option calculator. Will try it over the weekend.

I goofed up yesterday. In the option chain of TOS I was making a paper trade in the July Weekly. Turns out it was the wrong weekly. The first entry, which was the end of the month expiration, when they don´t label it, was the one I should have been in. I just caught on to the problem. So scrapped that lost trade. I was wondering what was the problem. I remember now belatedly, that they don´t mark the WEEKLY option in the fourth week, because it coincides with the end of month weekly. So the one I was working in, turned out to be the early part of next week´s weekly.
Wasted the morning, well part of it anyway. I´m off to run some errands downtown. Need some things instead. At least it was an experimental paper trade.

Did look up some more on VEGA. I understand what they are saying, but just can´t correlate it to what I see on the screen for the option chain. Maybe after I play with the option calculator? Thankyou again.
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do you really think understanding the greeks like a Ph.D. and knowing concepts and terminology like a scientist is going help you be successful in the options markets.I agree it helps to understand and be able to determine volatility since that is necessary to implement certain options strategies; however even that can be overcome if you are an excellent directional trader and position size properly.

In fact in my view if you are are a good directional trader and/or have the knack for knowing when a stock might stay within a trading then all the option calculators in the world will not improve upon that. After all when you enter your assumptions and data into the calculator it is of little to no value if you are wrong on what you suspect will occur, and by when.

Further I submit it pays to learn about option expiry price level 'pegging' or whatever one calls that "phenomena." For example I could have told you days or weeks ago that OIH would likely settle around 152.50, and thus would trade during expiry week between +/- X% thereof. Without debating this, keep an eye on certain indexes and equities and see if they do not gravitate to and trade around certain prices during expiry week. Further option open interest will give you more input into probable price levels during said week.

As I see it a major benefit with options is that you can trade a stock like GOOG or any high-priced equity, etc. etc. without having the capital to buy X shares, provided you thoroughly understand margin.
 
Quote from iceman1:

...keep an eye on certain indexes and equities and see if they do not gravitate to and trade around certain prices during expiry week. Further option open interest will give you more input into probable price levels during said week.
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Just curious, have you quantified this?
 
one more thing

the OIH gapped up today

now, that gap will fill unless it is a runaway gap; even then there will come a time that it will head back there like a magnet.

I suggest this will occur on Monday - latest Tuesday morning; OIH will trade back under 150. Thus if you believe that is a likely move, you can buy deep ITM puts with a stop loss in $ or time. You can leg in IF OIH (or whatever equity you may choose to trade) moves away from said gap. Another example is RIMM. It's a miracle that it just happened to settle on 27.50 today. Must be a coincidence; but the play was to sell the 27.50 call when it popped up earlier this week. Now, I would not do that naked as it is possible RIMM could make an announcement or there 'could' be a buyout that would push this stock north of 35+. But with that caveat it was fairly certain Rimm would be marked to 27.50,

So long as you do not get shaken out too soon (when there is plenty of time value) these are high probability trades (provided you factor in sentiment, and major and minor trends.)
 
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