In my testing I've found out that trades w bad alphas get stale really fast while stocks that have good IV's which result in higher aplhas has a little bit more shelf life. Case in point Nov 11 2011 weekly - AAPL and MA had really bad alphas, both of them sat for about 2 hours, huge pnl down on straddle. Contrast w another stock with an alpha of 1 has a little bit more staying power before it starts to head south/Buy trader an extra 1 hour to wait for move.
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Trading Long Straddles
- Thread starter falconview
- Start date
Quote from Riffraffpatrol:
If you're system has you with firm conviction in a particular direction, there is no reason whatsoever to do a straddle. If volatility is low-- buy calls. When IV is high-- sell puts. Based on a 2-3 day timeframe and want some wiggle room-- look to a new weekly series (every Thurs)... If u feel strongly thr move is imminent at present-- do the front weekly. I
Prefer deep ITM-- but if your willing to take the risk and u get your move-- the returns can be phenomenal on ATM/OTM.
Hi,
Thanks, agree with straddle, that doesnt make any sense.
so yes it would be imminent
so when you refer to weekly, what does this mean ? never heard this term in option ?
I prefer a little risk, so I think I would buy ATM sell OTM verticle for example.... if bullish, but not sure how weekly terminology plays into this ? I would just look at opion chain related to the commodity 9 I would be looking at gold or oil in many cases, not equities)
thanks agin
When you look at an option chain, you will have a choice of April Weekly, May first month, June second month, July third month, all the way out to yearly options called LEAPS. Depends on how much time you need to trade your strategy.
Quote from Dolemite:
Just saying to be careful if you are buying an OTM debit spread and the short is only worth .10-.25 for example. You are capping your gains instead of just owning the outright long option.
On a separate note, I see so many traders keep a credit spread on way too long trying to wait for that last 10-20 cents decay. A short option that is 1.00 will drop to .50 a lot faster than a .10 short option will drop to .05
Ok thanks. For example instead of going long the future I will be buying an ATM call and selling a maybe 25 delta OTM strike? So the short will or should be worth bit... I would not buy OTM because this is a bias directional play on the underling for anywhere from 1 to 5 days...
Quote from falconview:
When you look at an option chain, you will have a choice of April Weekly, May first month, June second month, July third month, all the way out to yearly options called LEAPS. Depends on how much time you need to trade your strategy.
I am looking only at gold oil nat gas. Commodities really. Not seeing this weekly option basically I take the month I am wanting to bet on with respect to futures except that I use options so if I am looking at
June futures I use a ATM June gold call long and sell a OTM strike with a 25 delta or so.
Quote from Dolemite:
I have seen a lot of traders that are very successful just trading verticals. If you have a bias of where it is going then buy an option 1 strike in the money and sell an option 1 strike out of the money. If the conviction is strong, buy an otm vertical (provided the short option makes a difference). If you have a bias of where you think it won't go, sell an otm credit spread. Verticals have a way of reducing the risk of other greeks so you can focus on the delta which is what you want in a pure directional play.
Than you.
If I buy ATM what strike to choose Otm and why? and I am guessing this is better than a bet on the futures if and when I have a strong directional bias on the underlying itself for a few days or week.... Not a opinion about volatility IV or otherwise
Quote from falconview:
Having failed at credit spread trading, Gap trading and straight buying of options. I´m now trying LONG STRADDLES in options...
Have you also failed at trading common stocks? Why not try to develop at least a slight directional edge trading the underlying before heading straight into the option pit?
Quote from Dolemite:
I have seen a lot of traders that are very successful just trading verticals. If you have a bias of where it is going then buy an option 1 strike in the money and sell an option 1 strike out of the money. If the conviction is strong, buy an otm vertical (provided the short option makes a difference). If you have a bias of where you think it won't go, sell an otm credit spread. Verticals have a way of reducing the risk of other greeks so you can focus on the delta which is what you want in a pure directional play.
.....a nice overview of verticals, i think the biggest problem with the way many folks use verticals is the blind side to the amount of leverage and risk they are using, you need to position size correctly and have a plan for recovery if things turn against you...
....you can set up a table of various strike combos to get a picture of risk/reward across the available strikes and possible underly moves....
....as you say, your expectation of will-go/wont-go can be used to help determine the choice of debit or credit...
Traderlux
I find the discussion on verticals interesting. But whatever it is you are saying is apparently way over my head. I´d like to know how you can adjust verticals and morph into other things for instance?
I find the discussion on verticals interesting. But whatever it is you are saying is apparently way over my head. I´d like to know how you can adjust verticals and morph into other things for instance?
I´m trying to put on my first BUTTERFLY trade in TOS, but I don´t seem to get any order form, when I click on anything, with the butterfly index? Is there a trick to this?