isn't Fair Alpha and Alpha a function of the same imputs so it should have a "circular" answer?
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Trading Long Straddles
- Thread starter falconview
- Start date
isn't Fair Alpha and Alpha a function of the same imputs so it should have a "circular" answer?
Sorry I dont understand Greek, or Chinese! Or Mayan hyroglyphs. Or sumerian writing.
Let me summarize what I´ve learned about LONG STRADDLE TRADING SO FAR.
LONG STRADDLES ARE SEDUCTIVE. WHY?
They are non-directional. The market can gyrate around and sooner or later you will win with a long straddle. They are also limited risk and unlimited reward in theory.
In reality I have found LONG STRADDLES to be slow performers and the returns are about the same as credit spreads. 3% to 5% thereabouts. You are probably looking at a blind LONG STRADDLE taking a month, or three weeks to return you 3%. A lot depends on the VIX reading. Over VIX 25, long straddles work quicker.
Going in blind on a LONG STRADDLE, only requires that you
a) buy far enough out in distance, 3 months, or leap options, to make money of some sort.
b) That you pick a time to enter, when the market is quiet and volatility is low. Kind of like congestion periods in the market with no trends.
You will make money going in blind, at least once a month on a LONG STRADDLE. Your return though, is small about 3%.
If you look at it as 12 monthly trades of 3%, you will make 36% gross for the year on your savings. Pay the IRS their 40% at the end of the year and your savings will grow annually 21.5% net income. This presumes you invest ALL your savings in trading a monthly LONG STRADDLE. Better than the bank right now in 2012.
A LONG STRADDLE PRETTY MUCH has to move 3 strikes in the QQQ index to make that 3%. Each month the QQQ moves about 5 strikes.
The losers in using LONG STRADDLES are the short time traders. Sometimes they win, but they often lose too. You have to be far out in months, to give your trade time to work. Just watch it gyrate up and down and eventually you will either get a trend for the month, or you will get a volatility boost from some big moving stock, that has a news announcement, or good, or bad earnings report. AT least in trading indexes.
PATIENCE is the key to trading LONG STRADDLES. That and entering when the market is dull.
The TRICKS to trading LONG STRADDLES ARE:
If you trade individual stocks with a LONG STRADDLE, that is a different ball game, more speculative.
Dont buy a straddle when volatility is HIGH. Or whatever you are trading is trending. Wait until the trend collapses and goes into congestion. You want low volatility for an entry. A choppy dull market is perfect for an entry.
Keep an eye on your Long Straddle, a couple of times a day. Because the unexpected can happen and you get a volatility spike. If and when you should LUCK OUT, and actually get an unexpected volatility spike for some at present unknown reason ( the reason is not important ) Take your PROFIT and get out.
LONG STRADDLES ARE VOLATILITY TRADES. THEY REQUIRE A VOLATILITY PREMIUM BALLOONING FROM SOMETHING HAPPENING.
Some big moving stocks, like RIMM, APPL, or GOOG for instance, have volatility spikes over news announcements, or earnings, and since they are big daily percentage swingers anyway, they can give you a nice volatility bounce and a profit quickly inside of a day.
Some of the stuff recommended on this thread I haven´t tried, or experienced yet. But here are a few of them suggested.
You can GAMMA SCALP a LONG STRADDLE ?
If you should be bothered by TIME DECAY, because you bought too short in your months, first or second month options, you can finance that TIME DECAY with a 6 strike OTM Credit Spread.
For the GREEK afficianados, Vega reading may be helpful.
One large FUND MANAGER says she ( DerivativeG on here ) trades LONG STRADDLES SUCCESSFULLY.
The problem with option traders in a general sense, is they are adrenaline junkies. They do not have the patience to trade successfully. Plus like the pilgrams that went over the CHILKOOT PASS during the KLONDIKE GOLD RUSH in the 1800´s, most of the time, they are consumed by GREED and GOLD FEVER.
LONG STRADDLES ARE SEDUCTIVE. WHY?
They are non-directional. The market can gyrate around and sooner or later you will win with a long straddle. They are also limited risk and unlimited reward in theory.
In reality I have found LONG STRADDLES to be slow performers and the returns are about the same as credit spreads. 3% to 5% thereabouts. You are probably looking at a blind LONG STRADDLE taking a month, or three weeks to return you 3%. A lot depends on the VIX reading. Over VIX 25, long straddles work quicker.
Going in blind on a LONG STRADDLE, only requires that you
a) buy far enough out in distance, 3 months, or leap options, to make money of some sort.
b) That you pick a time to enter, when the market is quiet and volatility is low. Kind of like congestion periods in the market with no trends.
You will make money going in blind, at least once a month on a LONG STRADDLE. Your return though, is small about 3%.
If you look at it as 12 monthly trades of 3%, you will make 36% gross for the year on your savings. Pay the IRS their 40% at the end of the year and your savings will grow annually 21.5% net income. This presumes you invest ALL your savings in trading a monthly LONG STRADDLE. Better than the bank right now in 2012.
A LONG STRADDLE PRETTY MUCH has to move 3 strikes in the QQQ index to make that 3%. Each month the QQQ moves about 5 strikes.
The losers in using LONG STRADDLES are the short time traders. Sometimes they win, but they often lose too. You have to be far out in months, to give your trade time to work. Just watch it gyrate up and down and eventually you will either get a trend for the month, or you will get a volatility boost from some big moving stock, that has a news announcement, or good, or bad earnings report. AT least in trading indexes.
PATIENCE is the key to trading LONG STRADDLES. That and entering when the market is dull.
The TRICKS to trading LONG STRADDLES ARE:
If you trade individual stocks with a LONG STRADDLE, that is a different ball game, more speculative.
Dont buy a straddle when volatility is HIGH. Or whatever you are trading is trending. Wait until the trend collapses and goes into congestion. You want low volatility for an entry. A choppy dull market is perfect for an entry.
Keep an eye on your Long Straddle, a couple of times a day. Because the unexpected can happen and you get a volatility spike. If and when you should LUCK OUT, and actually get an unexpected volatility spike for some at present unknown reason ( the reason is not important ) Take your PROFIT and get out.
LONG STRADDLES ARE VOLATILITY TRADES. THEY REQUIRE A VOLATILITY PREMIUM BALLOONING FROM SOMETHING HAPPENING.
Some big moving stocks, like RIMM, APPL, or GOOG for instance, have volatility spikes over news announcements, or earnings, and since they are big daily percentage swingers anyway, they can give you a nice volatility bounce and a profit quickly inside of a day.
Some of the stuff recommended on this thread I haven´t tried, or experienced yet. But here are a few of them suggested.
You can GAMMA SCALP a LONG STRADDLE ?
If you should be bothered by TIME DECAY, because you bought too short in your months, first or second month options, you can finance that TIME DECAY with a 6 strike OTM Credit Spread.
For the GREEK afficianados, Vega reading may be helpful.
One large FUND MANAGER says she ( DerivativeG on here ) trades LONG STRADDLES SUCCESSFULLY.
The problem with option traders in a general sense, is they are adrenaline junkies. They do not have the patience to trade successfully. Plus like the pilgrams that went over the CHILKOOT PASS during the KLONDIKE GOLD RUSH in the 1800´s, most of the time, they are consumed by GREED and GOLD FEVER.
{LONG STRADDLES ARE VOLATILITY TRADES. THEY REQUIRE A VOLATILITY PREMIUM BALLOONING FROM SOMETHING HAPPENING.}
That statement is why extrapolating a 3% monthly return and saying you can 36% annually is a mistake. Volatility seldom cooperates. It can contract for months on end and your return will get progressively smaller. Its not that option/vol traders are impatient (they are but thats beside the point) simply put vol trades are almost by definition a shorter term trade. It helped me to be told (and understand) vol is synthetic theta (time). It can speed or slow the effects of theta.
There is NO ONE PERFECT trade ALL the time. Its helpful to know/understand which trades have more going for them and thats why playing with the various types during various market conditions is so helpful. SIM trades do this without costing you $$$
That statement is why extrapolating a 3% monthly return and saying you can 36% annually is a mistake. Volatility seldom cooperates. It can contract for months on end and your return will get progressively smaller. Its not that option/vol traders are impatient (they are but thats beside the point) simply put vol trades are almost by definition a shorter term trade. It helped me to be told (and understand) vol is synthetic theta (time). It can speed or slow the effects of theta.
There is NO ONE PERFECT trade ALL the time. Its helpful to know/understand which trades have more going for them and thats why playing with the various types during various market conditions is so helpful. SIM trades do this without costing you $$$
Good point.
I had discarded the long straddle as trading. Not enough ooomph I thought.
I´m not getting a enough moves in the market for straight buying. My directional skills are okay, but the moves are too shallow. Often too shallow to pay the bid ask, and commissions. So having picked up a bit of minor experience since I had quit writing to this thread with other stuff, I got interested again in the Long Straddle. Had a lot of notes, so was re-reading them. I like the Long Straddle best of all, just don´t know how to make money consistantly with it, in the amounts would satisfy me.
One memo I wrote to myself, was don´t trade a Long Straddle in a bull market. Below VIX 25. The daily and weekly moves in the QQQ are just not enough. As someone else said, you just bleed your account to death.
Another note, was, you could bias a long straddle, by placing it + 25 delta. That sounds like a strangle to me, but never tried it. Supposedly would work in a Bull trend.
I´ve got a note here, that says GAMMA SCALPING. Which I believe if my memory serves me right is buying or selling one side to keep the long straddle Delta Neutral. But I´ve forgotten how to calculate delta neutral again in a changing straddle. Don Bright told me, but it has slipped my mind and didn´t make a note.
Another note says to do a Thursday, Friday weekly expiration with a long straddle. Losing on one side but gaining on one side. Presume you would close the winning side before 10.30 a.m.? Will have to look at that again. Think I did before, but discarded it for some reason.
One note idea was to compound, by adding more long straddles as the index gyrates through the ATM strike. Build up a bank, for the eventual volatility balloon, or longer market direction.
I sure know a lot more now than when I started this thread. Credit spreads, debit spreads, Calendars, but I´m still losing money. So none of the learning has shown up in a bigger equity balance. Maybe it´s the water I´m drinking?
Phoned the wife last night and told her I was thinking of quitting. Throwing in the towel. Got to have a profit, or I´m not cut out for it. Get back serious in real estate, where whatever money I have made has been. Just that real estate is even slower than trading options. About 7 years for a turn-a-round and at 75 years old doubt I have the time left to see results. A man has to stay busy and mentally challenged though, or life is no fun.
I´m not getting a enough moves in the market for straight buying. My directional skills are okay, but the moves are too shallow. Often too shallow to pay the bid ask, and commissions. So having picked up a bit of minor experience since I had quit writing to this thread with other stuff, I got interested again in the Long Straddle. Had a lot of notes, so was re-reading them. I like the Long Straddle best of all, just don´t know how to make money consistantly with it, in the amounts would satisfy me.
One memo I wrote to myself, was don´t trade a Long Straddle in a bull market. Below VIX 25. The daily and weekly moves in the QQQ are just not enough. As someone else said, you just bleed your account to death.
Another note, was, you could bias a long straddle, by placing it + 25 delta. That sounds like a strangle to me, but never tried it. Supposedly would work in a Bull trend.
I´ve got a note here, that says GAMMA SCALPING. Which I believe if my memory serves me right is buying or selling one side to keep the long straddle Delta Neutral. But I´ve forgotten how to calculate delta neutral again in a changing straddle. Don Bright told me, but it has slipped my mind and didn´t make a note.
Another note says to do a Thursday, Friday weekly expiration with a long straddle. Losing on one side but gaining on one side. Presume you would close the winning side before 10.30 a.m.? Will have to look at that again. Think I did before, but discarded it for some reason.
One note idea was to compound, by adding more long straddles as the index gyrates through the ATM strike. Build up a bank, for the eventual volatility balloon, or longer market direction.
I sure know a lot more now than when I started this thread. Credit spreads, debit spreads, Calendars, but I´m still losing money. So none of the learning has shown up in a bigger equity balance. Maybe it´s the water I´m drinking?
Phoned the wife last night and told her I was thinking of quitting. Throwing in the towel. Got to have a profit, or I´m not cut out for it. Get back serious in real estate, where whatever money I have made has been. Just that real estate is even slower than trading options. About 7 years for a turn-a-round and at 75 years old doubt I have the time left to see results. A man has to stay busy and mentally challenged though, or life is no fun.
Last time I say this. I promise.
You are learning the wrong way. You are learnings which situation to use which option strategies in. Thing is that every situation is different in some way. Either the market is different or the options in play are different.
Instead if you first learned some options theory then you will find your own situations to trade and you will see profits.
Instead you see someone do something and you apply the same strategy to another scenario where there is some similarity. You miss the differences in the scenario because you don't know to look for them.
This is why you aren't seeing the success you can.
You are learning the wrong way. You are learnings which situation to use which option strategies in. Thing is that every situation is different in some way. Either the market is different or the options in play are different.
Instead if you first learned some options theory then you will find your own situations to trade and you will see profits.
Instead you see someone do something and you apply the same strategy to another scenario where there is some similarity. You miss the differences in the scenario because you don't know to look for them.
This is why you aren't seeing the success you can.
Quote from option_vixen:
{LONG STRADDLES ARE VOLATILITY TRADES. THEY REQUIRE A VOLATILITY PREMIUM BALLOONING FROM SOMETHING HAPPENING.}
That statement is why extrapolating a 3% monthly return and saying you can 36% annually is a mistake. Volatility seldom cooperates. It can contract for months on end and your return will get progressively smaller. Its not that option/vol traders are impatient (they are but thats beside the point) simply put vol trades are almost by definition a shorter term trade. It helped me to be told (and understand) vol is synthetic theta (time). It can speed or slow the effects of theta.
There is NO ONE PERFECT trade ALL the time. Its helpful to know/understand which trades have more going for them and thats why playing with the various types during various market conditions is so helpful. SIM trades do this without costing you $$$
I'm sorry but you are looking in entirely the wrong time frame for straddles. Do yourself a huuuge financially life changing favor and study trading strangles/straddles in high beta/high ATR equities with high volume and tight bid/ask weekly options on Thurs/Fris and sometimes Weds...the returns are phenomenal, the probabilities for success are extremely high, and even much higher if you know how to read a chart and the patterns that help signal a price move outside of 1-2 std deviations.
Quote from Riffraffpatrol:
I'm sorry but you are looking in entirely the wrong time frame for straddles. Do yourself a huuuge financially life changing favor and study trading strangles/straddles in high beta/high ATR equities with high volume and tight bid/ask weekly options on Thurs/Fris and sometimes Weds...the returns are phenomenal, the probabilities for success are extremely high, and even much higher if you know how to read a chart and the patterns that help signal a price move outside of 1-2 std deviations.
I need to also add you must have sound risk mgmt and understand how time decay functions intraday...if the desired move doesnt occur within a certain period of time-- you are out w/ a small loss compared to the exponential returns when you are right.
The key here is intraday trading ONLY...NO OVERNIGHT POSITIONS...THAT IS A FOOLS GAME!!
When u have a full understanding of all the nuances...the term "easy money" becomes reality.
Get a thinkorswim platform and run a replay of the market on select Thurs/Fri and track movement on names such as bidu/aapl/ibm/amzn to name a very select few...there are plenty others... Take trades based on the charts and watch the chains...u will b amazed.
Remember-- current weekly optiom chains only. Good luck.
absolutely DISagree that options are good INTRAday vehicles. I actually do trade the weekly and monthly ES options and have done well doing it..using PA and couple other indicators.
Agree that volatility trades are shorter term than what falcon is looking at.
Everyone has to find their own comfort zone...yours is NOT mine. GL in your trades.
Agree that volatility trades are shorter term than what falcon is looking at.
Everyone has to find their own comfort zone...yours is NOT mine. GL in your trades.