Trading Long Straddles

Riffraffpatrol · Apr 13, 2012

Quote from MushinSeeker:

for the example. In this approach does this mean that you have to focus only on a handful of stocks since you have to be more precise in your timing as opposed having position on 20-30 tickers using longer term positions?

Well personally for me...i have 18 stocks that i track daily in 4 timframes...charting key supply/demand levels on the 15 min timeframe... on a single screen i can view 3 stocks simultaneously in all time frames. Tabbed workstations in tradestation let me easily view all 18 stocks over 2 monitors. In another workspace i can view all 18 stocks in the 5 min timeframe. On a given day typically the best setups will be visible on approx 4-5 stocks max. Not sure if this helps?

TskTsk · Apr 13, 2012

Quote from Riffraffpatrol:

With it being said that time decay in last 2 hrs is challenging, it is not without it's opportunities... consider the 610/605 straddle in AAPL at around 2:45 pm-- the cost was around .62....by 3:15 it was $ 1.10. The call side couldve been closed out for $ 1.01... a 65% rtn or so, with free puts to hold for potential reversal... which is exactly what happened-- the last 10 mins of trading saw aapl go near lows-- those puts traded at .50 bid...

Helllo...anyone listening...?

But this was thanks to it moving outside 610/605 within the last hour...how often does that happen? had it not moved you'd have wasted $62.

Riffraffpatrol · Apr 13, 2012

Quote from TskTsk:

My bad, I thought you said last 2 days until expiry, not last 2 hrs until expiry...last 2 hrs probably offer some interesting opportunities.

What I am saying for an optiom that expires on Friday-- there are exceptional opps that occur on Thurs and again on Friday....and on rare occasions Wed. Friday can be difficult in the last 2 hours due to rapid time decay...but in right circumstances such as the example there is merit...albeit much higher risk as well.

TskTsk · Apr 13, 2012

Quote from Riffraffpatrol:

What I am saying for an optiom that expires on Friday-- there are exceptional opps that occur on Thurs and again on Friday....and on rare occasions Wed. Friday can be difficult in the last 2 hours due to rapid time decay...but in right circumstances such as the example there is merit...albeit much higher risk as well.

Hm I see, what kind of signal are you using? if you have some kind of charting indicators/timeframes that you monitor and act upon, then obviously the edge you have is most likely in that, rather than in option market irrationality, which was my original understanding of your post...

Riffraffpatrol · Apr 13, 2012

Quote from TskTsk:

But this was thanks to it moving outside 610/605 within the last hour...how often does that happen? had it not moved you'd have wasted $62.

No...incorrect. Look at the chart-- price was in a channel from 607.50 - 610 for a good portion of the day...entry at support was perfect for middle of strikes which allowed for lowest premium paid...all stock had to do was return to the resistance in the range, and you had opp to close out both sides for 1.10...or close the call side for 1.01 and ride puts for free to closing... only on break of channel did this later scenario provide another .41 premium...which was extra gravy.

TskTsk · Apr 14, 2012

Quote from Riffraffpatrol:

No...incorrect. Look at the chart-- price was in a channel from 607.50 - 610 for a good portion of the day...entry at support was perfect for middle of strikes which allowed for lowest premium paid...all stock had to do was return to the resistance in the range, and you had opp to close out both sides for 1.10...or close the call side for 1.01 and ride puts for free to closing... only on break of channel did this later scenario provide another .41 premium...which was extra gravy.

this is what i thought...your edge is in reading things like channel, support/resistance etc....which is subjective by nature. in other words, the edge isnt really from the option market in itself, which is what i thought you implied previously...such subjective things can be difficult to run statistics on because its hard to quantify...so not my cup of tea, but interesting nontheless

Riffraffpatrol · Apr 14, 2012

Quote from TskTsk:

Hm I see, what kind of signal are you using? if you have some kind of charting indicators/timeframes that you monitor and act upon, then obviously the edge you have is most likely in that, rather than in option market irrationality, which was my original understanding of your post...

Signals? Well-- I have bollinger bands in time frames & wont trade w/o them... price must be at/near a strike for straddle or mid point between atrikes for strangles for delta neutrality, and the right chart formation patterns that have a high prob of preceding a move. If it doesnt materialize within a specific time- exit with small loss. Knowing which stocks have a high prob of moving to next strike price is huge as well. And stock with $ 1.00 strike increments and $ 1.50-2.00 atrs are big as well.

Riffraffpatrol · Apr 14, 2012

Quote from TskTsk:

this is what i thought...your edge is in reading things like channel, support/resistance etc....which is subjective by nature. in other words, the edge isnt really from the option market in itself, which is what i thought you implied previously...such subjective things can be difficult to run statistics on because its hard to quantify...so not my cup of tea, but interesting nontheless

Well it's both. Using tech analysis increases probabilities of success...but by nature of option properties itself near expiration makes it all possible...so much so that success can atill be achieved with no knowledge of TA.

Have you read Jeff Augen on the subject? Amazing stuff-- highly recommend him relative to trading options at expiration. I read all of them, understood the theory...and now have real world screen time and trades to validate the concept.

mushinseeker · Apr 14, 2012

have his books as well but at the time of publishing it was about the earnings play and expiration Friday-not to mention that the spread he proposed was a ratio 1:2 which has open ended risk or backspread which has vega risk But I don't think weeklies were trading then so I put it in the backburner since I want to start something sustainable and not a 4x per year event(earnings) and a monthly event (expiration friday(. Now that there are weeklies it gets more interesting since I would think the weeklies would tend to be sold by traders who use them as the short leg of calendars. Someone has to be on the bid side right?

TskTsk · Apr 14, 2012

Quote from Riffraffpatrol:

Well it's both. Using tech analysis increases probabilities of success...but by nature of option properties itself near expiration makes it all possible...so much so that success can atill be achieved with no knowledge of TA.

Have you read Jeff Augen on the subject? Amazing stuff-- highly recommend him relative to trading options at expiration. I read all of them, understood the theory...and now have real world screen time and trades to validate the concept.

I just read review of one of his books on amazon, seems he doesnt present an actual, practical trading strategy but rather the framework to help people develop an edge on their own. again this adds a bit subjectivity to it, and personally im more of a math and statistics type of guy...what im interested in is what you said "success can still be achieved with no knowledge of TA", which i assume is less subjective. but how does one achieve this success? do you have an easily backtestable example? for example long ATM straddle 2hrs before weekly expiry on AAPL over the last year...would this in total give me profit? and so on.