So TRADERLUX, you think your link helped falconview? He is in his own world.
Trading Long Straddles
- Thread starter falconview
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So TRADERLUX, you think your link helped falconview? He is in his own world.
falcon,
lets back up a step here. you want to do debit spreads, do you have the basics down?
they can be bull, with calls, or bear, with puts.
to start you need a directional outlook.
if bull, you buy a call and sell a higher strike call, which because it is a higher strike it is less expensive than the call you bought,
so overall you are at a debit trade position.
this is the most you can lose on the trade.
the most you can make is the difference between the strikes, minus the original debit, IF the trade goes in your direction, up in stock price.
what a debit spread does is lower the cost of the trade, than if you just bought a call by itself, for this lower entry cost, now your gain is capped.
so yes you now have the obligation of that short call which can be exersized against you, but you have the long call as well, and as pointed out, if the short call goes in the money, the spread might be at max profit, and could be closed out.
also, you know a debit spread must be closed out to get any gain, or to avoid max loss.
there are a lot more considerations, but this gets us on the same page.
lets back up a step here. you want to do debit spreads, do you have the basics down?
they can be bull, with calls, or bear, with puts.
to start you need a directional outlook.
if bull, you buy a call and sell a higher strike call, which because it is a higher strike it is less expensive than the call you bought,
so overall you are at a debit trade position.
this is the most you can lose on the trade.
the most you can make is the difference between the strikes, minus the original debit, IF the trade goes in your direction, up in stock price.
what a debit spread does is lower the cost of the trade, than if you just bought a call by itself, for this lower entry cost, now your gain is capped.
so yes you now have the obligation of that short call which can be exersized against you, but you have the long call as well, and as pointed out, if the short call goes in the money, the spread might be at max profit, and could be closed out.
also, you know a debit spread must be closed out to get any gain, or to avoid max loss.
there are a lot more considerations, but this gets us on the same page.
Both you guys, the nice one and the rude one. Thanks for the comeback. I had more or less just figured that out as well.
My trouble was, I came back from vacation, sick as a dog and not feeling too well. Got diagnosed with a tumor on a lymph gland node. Lot of pain. But wanted to put on trades for this past week. In review, watching it during this week, I noticed I had placed my debit spreads straddling the stock prices. This gave me too early results with market action. I should have seen it and realized it and I apologize. I didn't for whatever reasons. I have however, now got it fixed in my mind, that I would make the debit spread, one strike away from the stock price, or index action. Which will hopefully give the results I want. One more week of this and should have it figured properly.
Going to give it a go again tomorrow Friday. See if I can find any candidates to trade for next week. Of my three paper trades this past week, two are making money via time decay and one is losing. I'm going to let them expire and see how that works out. Find out the rules there by practice. You can learn that way, by trial and error. My thinking isn't too straight right now. Too many pain pills.
MUCH OBLIGED FELLAS, for caring and sharing!
My trouble was, I came back from vacation, sick as a dog and not feeling too well. Got diagnosed with a tumor on a lymph gland node. Lot of pain. But wanted to put on trades for this past week. In review, watching it during this week, I noticed I had placed my debit spreads straddling the stock prices. This gave me too early results with market action. I should have seen it and realized it and I apologize. I didn't for whatever reasons. I have however, now got it fixed in my mind, that I would make the debit spread, one strike away from the stock price, or index action. Which will hopefully give the results I want. One more week of this and should have it figured properly.
Going to give it a go again tomorrow Friday. See if I can find any candidates to trade for next week. Of my three paper trades this past week, two are making money via time decay and one is losing. I'm going to let them expire and see how that works out. Find out the rules there by practice. You can learn that way, by trial and error. My thinking isn't too straight right now. Too many pain pills.
MUCH OBLIGED FELLAS, for caring and sharing!
Well Thursday before the close. Have to admit I was not on the computer much this week, and just reviewing, two of my debit spreads were beyond their sold prices. Think the QQQ was at 65 strike and the WMB was at 31 strike. Should have been closed at 30 strike WMB and 64 strike for the QQQ.
Consequently in the TOS PAPER TRADING ACCOUNT, these are not showing any assignment. Guess they don't do that in the paper trading account? So these two trades are showing profits, more than they should. Closed them.
But now have a reminder for myself, that when I make a debit spread, MUST watch that SOLD strike and close the debit spread when it approaches there. Otherwise I'm going to get a FALSE sense of money making, the way the TOS paper trading system works. The market went another strike further in each of the two cases and it looks like I am making more money than I would in the real world of trading money. At least thats the way I understand it right now.
Going to browse the stocks and see if anything there likely for a trade starting tomorrow. Try my reviewed and hopefully corrected way I have to do this, for next week.
Consequently in the TOS PAPER TRADING ACCOUNT, these are not showing any assignment. Guess they don't do that in the paper trading account? So these two trades are showing profits, more than they should. Closed them.
But now have a reminder for myself, that when I make a debit spread, MUST watch that SOLD strike and close the debit spread when it approaches there. Otherwise I'm going to get a FALSE sense of money making, the way the TOS paper trading system works. The market went another strike further in each of the two cases and it looks like I am making more money than I would in the real world of trading money. At least thats the way I understand it right now.
Going to browse the stocks and see if anything there likely for a trade starting tomorrow. Try my reviewed and hopefully corrected way I have to do this, for next week.
there are several stratgies for every situation... its a way you expresss yourself.. if you feel volatility is being priced to highly you figure out a limited risk way to sell it.. like a butterfly.. which is basically a straddle with wing protection... plus you don't have near the margin requirement and the finanical risk is so much reduced.. you can't just rule out other types of strategies and say "i'm going to try trading straddles" Your basically sort of trotting along trying strategies and when they don't work you move on to the next.. ratio writes, backspreads... there are so many ways to express the way your thinking of trading right now with so many different risk profiles.. if your not delta hedging on a continuous time basis (which is near impossible) you can't hedge the short or long straddle for huge draw downs.
Thanks for the inputs this Saturday morning.
Put 5 debit spreads on, different stocks. It wasn't the way I planned, but seems to be evolving that way. Reminds me of the guy who said he was doing alright trading OTM debit spreads on stocks. I seem to be defaulting by accident to his system of trading. We shall see?
Put 5 debit spreads on, different stocks. It wasn't the way I planned, but seems to be evolving that way. Reminds me of the guy who said he was doing alright trading OTM debit spreads on stocks. I seem to be defaulting by accident to his system of trading. We shall see?
July 23
Got some big market movers the rest of this week. Wonder which way the market will go.
Got some big market movers the rest of this week. Wonder which way the market will go.
Still learning how to trade debit spreads and figure it with timing the market in paper money. Not yet ready to jump into cash trade with them yet.
falcon,
here are a couple of deals to follow, bullish spreads on aapl, one debit and one credit, aug monthly expiration, similar risks
aapl @$585.16, fri jul 27
aug 560/565 call bull debit spread, cost $440 (max risk), max return $60, 14% return, 3wks, 20 price points of cushion, 3.5%
aug 545/550 put bull credit spread, credit $45, reqd margin hold $455 (max risk), 10% return, 3wks, 35 price points of cushion, 6%
there is presently about $22 of movement priced in the aug options, so these could be decent deals....i have them in a sim account so we will see how they work out
there is a dividend event for aapl coming up on aug 13, so we need to see what effect that will have
note also the max risk is an extreme condition and loss could be mitigated by pro-defensive actions of closing and/or rolling the positions