Trading Long Straddles

Forex Forex

I tried your overnight trade this morning. Will try it in QQQ each night this week. Made + $11.00 this morning. Probably make more as the day progresses. This is paper trade. Just curious. Can´t hold it long because of THETA being high.

I find my straight Calls and Puts are not doing too good, compared to the long straddles.
 
ATTICUS

Let me run this by you please?

The QQQ has reached the QQQ 90 strike. The trend has changed and is going UP. A breakout also has occured. I wish to use REAL MONEY and put on another long straddle. Since I believe we are now in a bull trend, very shallow as it may be and not much strength. I am contemplating using that + .25 Delta long straddle.
Looking at it, I pick the 58 Call at Delta + .56 and the 56 PUT at Delta - .29.
Just want confirmation I am doing this right, as to my thinking processes, thanks? Since I am not sure, might just do this in a paper trade, though if it is a right decision I would do it in REAL MONEY.
 
Well a bit of time on my hands here. I was wanting to learn a bit about hedging. A comment by Dolemite, confirmed by Derivatives G stayed in my mind. So went scrolling through the back posts on this thread. At the time I didn´t understand it. Not sure I do yet?

Basically the comment was to buy an SPX straddle, then cover the THETA by buying an OTM VIX CALL credit. To finance the THETA.

Re-reading it here, I still don´t understand it? The OTM VIX call would be---- betting that the market would go down?

So if the straddle went up?? Then what? Nope! Still don´t get it.
 
your problem is you are all over the place one day straddles next hedging, you never figured out vega which is basic. You need to stay focused on one thing at a time.
 
kinggyppo

Ha! Ha! Ha! Curious minds want to know and too many dull hours between having a straddle win it´s quota.

Which got me wondering. If you bought a long Straddle in both QQQ and VIX, you would average any profit or loss, since they work opposite?

Would this help you when you are in a dull slow Bull trend, when the Volatility is dropping and reducing your premiums? Would the VIX gain offset the reduced premiums in the QQQ bull trend.
 
vix and qqq are not related, correlated yes, vix is derived from sp500 options, I am not an expert in this. Generally, the vix should not be traded by retail folks due to the many issues involved, I would stay away from vix straddles unless riskarb or someone conversant in the issues explains how they are priced. Someone else could chime in on why vix options should be avoided. I know what you are saying though.

Question; if you are long a straddle does increasing volatility help or hurt your position?





What Does VIX - CBOE Volatility Index Mean?
The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".
 
"The VIX is the square root of the par variance swap rate for a 30 day term initiated today. Note that the VIX is the volatility of a variance swap and not that of a volatility swap (volatility being the square root of variance). A variance swap can be perfectly statically replicated through vanilla puts and calls whereas a volatility swap requires dynamic hedging. The VIX is the square-root of the risk neutral expectation of the S&P 500 variance over the next 30 calendar days. The VIX is quoted as an annualized variance."

huh?



http://en.wikipedia.org/wiki/VIX
 
Dynamic Hedging of the LONG STRADDLE

This continuous resetting of an option trading position's delta value to zero is Dynamic Delta Hedging or simply, Dynamic Hedging.
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I guess from this you adjust your delta neutral position by adding or subtracting PUT or Call options, to achieve delta neutral?
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I´m not quite sure how one profits from this if the market moves one way or the other. I can understand an Implied Volatility explosion though.
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Quote from falconview:

kinggyppo

Ha! Ha! Ha! Curious minds want to know and too many dull hours between having a straddle win it´s quota.

Which got me wondering. If you bought a long Straddle in both QQQ and VIX, you would average any profit or loss, since they work opposite?

Would this help you when you are in a dull slow Bull trend, when the Volatility is dropping and reducing your premiums? Would the VIX gain offset the reduced premiums in the QQQ bull trend.
More...

This is nothing like KISS.:confused:
 
I´m with you Eudaman.

Let me see, I have a long straddle (CASH MONEY) put on at QQQ 57. 2 contracts.
The delta was neutral when put on. Currently the market has moved and that straddle now has a skewed Delta. If I buy 2 more PUT options at -.28 Delta, which would be the QQQ 56 PUTS, I would be Delta Neutral again.

Now how does this help me?

At the moment the long straddle is still working on paying off the commissions. It has paid off the market maker spread.

Since the long straddle is working, and it is in CASH and I don´t know what I am doing. I can just theoretically add 2 contracts in the 56 PUTS to see what happens in a paper trade. Think I will do that.
 
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