Trading Long Straddles

Quote from cdcaveman:

wait.. this is a debit spread.. where is the max gain at? what happens when aapl is at 600 and both expire deep in the money and the spread to get out is wide?
More...

if price stays above the strikes, the spread will move towards its max value of $500 as time moves to expiry. at some time before expiry you will get maybe 90% of your max return and you could close it out.

if you hold into expiry at a $600 stock price you will get the full value of the spread, $500, which you paid $440 for.

the short 565 call would $35, and the long 560 call would be $40, the net is $5 per option, $500 per contract.

i have done a couple of these monthly aapl ITM debit spreads and i have closed them at profits before expiry, returns have been about 10%.

i am just an amatour like falcon, so listen at your risk, just trying to learn it myself, i have a good handle on the credit spreads, figure i might be able to add debit spreads to my arsenal,
i have given up on any thing beyond verticals.
 
Quote from cdcaveman:

wait.. this is a debit spread.. where is the max gain at? what happens when aapl is at 600 and both expire deep in the money and the spread to get out is wide?
More...


here is another aapl debit spread to consider...

aapl jan(2013) 570/600 call debit spread, cost $1490, max return $1510. (101% return), 6 months
 
Traderlux

Thanks for chiming in!


I'm not really following this? If I was to do a call debit spread right now with AAPL at 597, I would buy the 600/620, I theenk?

You are saying you are going further out the money?

To the 560/565.

You kind of seem to be saying, and I may not read this right, or understand it. You are figuring for an OTM credit spread and then doing a sort of Condor trade, but way out the money. Expecting to collect time decay on the August options. With a debit spread and credit spread combo. Which is a condor, though I just thought a condor was done around current market price? In reflection, there seems no way to object to doing one out the money like that? Something new to me. You are really looking to protect the credit spread apparently with the debit spread? Though I'm not savvy enough to figure that one out. With two weeks to go for expiration, and if it works out like you say, it would be something to watch out for regularly. Either way you are going to pay your commission costs, or make $500?

I'm in paper money trading right now anyway, I'll give it a try, to see if I can learn it by osmosis, hands on. ( grin )
 
Well I looked at the trade and when I tried entering a condor, the credit spread was closer to the price action and I didn't like that. I was trying to get the credit spread one strike away more, from the price action. Still learning how to do this order entry stuff. Anyway, I ended up with a debit spread 560/565 in August OTM for -$4.50. and a credit spread 560/565 in August OTM for +$4.50. Two weeks to expiry, something should happen but I don't exactly know what?

Fortunately this is paper money in TOS and we shall see? APPL PRICES SURE JUMP AROUND.

The regular debit spread from a timing viewpoint, looks good, which would be the 600/605. Let me see what I can do with that?

OKAY! I got that one as a debit, 600/605 Aug @ - 1.75

Looking at the debit and credit combo both at $4.50 it sort of looks to me you would break even less commission costs?
 
Quote from falconview:

Traderlux

Thanks for chiming in!


I'm not really following this? If I was to do a call debit spread right now with AAPL at 597, I would buy the 600/620, I theenk?

You are saying you are going further out the money?

To the 560/565.

You kind of seem to be saying, and I may not read this right, or understand it. You are figuring for an OTM credit spread and then doing a sort of Condor trade, but way out the money. Expecting to collect time decay on the August options. With a debit spread and credit spread combo. Which is a condor, though I just thought a condor was done around current market price? In reflection, there seems no way to object to doing one out the money like that? Something new to me. You are really looking to protect the credit spread apparently with the debit spread? Though I'm not savvy enough to figure that one out. With two weeks to go for expiration, and if it works out like you say, it would be something to watch out for regularly. Either way you are going to pay your commission costs, or make $500?

I'm in paper money trading right now anyway, I'll give it a try, to see if I can learn it by osmosis, hands on. ( grin )
More...


falcon,
those are 2 separate trades, i just wanted to compare a similar risk debit spread with a credit spread.

i have given up on considering anything except verticals, debit or credit.

condors, flys, straddles, strangles, calendars, diagonals for me are just to complicated for the returns you can get and the hassle of fighting bid/ask spreads on multiple options getting into the trades and then again trying to exit.
 
Quote from falconview:

Well I looked at the trade and when I tried entering a condor, the credit spread was closer to the price action and I didn't like that. I was trying to get the credit spread one strike away more, from the price action. Still learning how to do this order entry stuff. Anyway, I ended up with a debit spread 560/565 in August OTM for -$4.50. and a credit spread 560/565 in August OTM for +$4.50. Two weeks to expiry, something should happen but I don't exactly know what?

Fortunately this is paper money in TOS and we shall see? APPL PRICES SURE JUMP AROUND.

The regular debit spread from a timing viewpoint, looks good, which would be the 600/605. Let me see what I can do with that?

OKAY! I got that one as a debit, 600/605 Aug @ - 1.75

Looking at the debit and credit combo both at $4.50 it sort of looks to me you would break even less commission costs?
More...

falcon,

i think you would gain a better understanding by just doing a debit or a credit spread and forget about doing anything more complicated. as i said previously, i am only concentrating on vertical credit or vertical debit, not any kind of combination, just too hard to keep up with the dynamics and really learn anything from it.
i tried other things and even paid big bucks to work with a trader but it just did not work for me.
 
Traderlux

I think I goofed? In re-reading my order entries, it looks like, instead of doing a debit spread otm, and a credit spread otm. I ended up making two seperate debit spreads. Oooh well! I give up for today on this one. Got too many trades too follow now anyway.

I had started with last week:
CSCO Call 17/18
DVN Call 60/62.25
ETP CALL 47.50/50
twc 87.50/90 call
WMT 72.50/75 CALL
QQQ CALL 63/64

The QQQ and the WMT made something, but I was not keeping my balance in TOS and so know it wasn't much. I'm still positive though.
Going to have to mark my TOS paper trading balance down.
Looking at it in the Vertical Debit Spread calculator, what I end up getting and what I expected are two different things. The commissions seem to eat up nearly half the profit? I'm out of WMT and QQQ for last week. But my TIMING seems to be lacking for the rest? Was working on that over the weekend.
I've now added:
UPL PUT 23/22 Sept.
5 QQQ Calls 66/67 ( trying out a new timing idea )
1 AAPL Call debit 600/605

and apparently in error I have now made two OTM debits in AAPL for 560/565

All of the above are DEBIT SPREADS.

TIMING seems to be my weak point right now. Nice though, you can just sit on debit spreads anyway, even when mistaken. I've moved to September month this morning.
 
Quote from traderlux:

falcon,
those are 2 separate trades, i just wanted to compare a similar risk debit spread with a credit spread.

i have given up on considering anything except verticals, debit or credit.

condors, flys, straddles, strangles, calendars, diagonals for me are just to complicated for the returns you can get and the hassle of fighting bid/ask spreads on multiple options getting into the trades and then again trying to exit.
More...

I couldn't agree more.
Sometimes I think investors try those other strategies for the simple reason that they are available,... as they tend to look better in "theory" than they tend to work out in 'reality". (And because that's what the "big boys" tend to use).

And even a basic verticle bull spread can get you in BIG trouble, if you use more contracts than you have cash to buy if things go bad,... as you then have eliminated any kind of plan "B" to use as a back up.
Since you don't have the margin capacity to buy, due to excessive contracts, you can not buy all the stock(s) (PLAN "B") , and wait for a recovery.
Thus, your only choice is to close the trade for a loss.

Very tempting to sell more contracts than one has capacity to buy when doing credit spreads, as the alternative is to not utilize all of ones cash.
Or to only do spreads on single digit stocks.
Temptation has ruined many a spread trader.
Too tempting to think, that because ones potential loss is "limited" with spreads, that it's ok to tempt temptation, and sell more contracts than one has the capacity to actually buy... even with margin.
 
Quote from Put_Master:

I couldn't agree more.
Sometimes I think investors try those other strategies for the simple reason that they are available,... as they tend to look better in "theory" than they tend to work out in 'reality".

And even a basic verticle bull spread can get you in BIG trouble, if you use more contracts than you have cash to buy if things go bad,... as you then have eliminated any kind of plan "B" to use as a back up.
SInce you don't have the margin capacity to buy, due to excessive contracts, you can not buy all the stock(s) (PLAN "B") , and wait for a recovery.
Thus, your only choice is to close the trade for a loss.

Very tempting to sell more contracts than one has capacity to buy when doing credit spreads, as the alternative is to not utilize all of ones cash.
Or to only do spreads on single digit stocks.
Temptation has ruined many a spread trader.
Too easy to think that because ones potential loss is "limited" with spreads, that it's ok to tempt temptation, and sell more contracts than one has the capacity to actually buy... even with margin.
More...

all good points that are not well understood. i have seen your posts on the other thread with cd, and agree with your point of view. for spreads, having a back up plan and the dry powder to work it, should be part of the overall plan. there is a dark side to the leverage with spreads that most do not realize.....
 
I started getting some forum emails. About debit spreads. The point about having too many contracts is a valid one. However, the guy who got me interested in them does it differently. He is trading 50 debit spreads at a time. Usually out with 9 month options. I can see where diversification would be an asset. I've got up to 8 debit spreads now, but still find it a bit overwhelming. Nor can I easily find candidates. I'm just getting used to trading stocks, and look up their earnings dates before I buy a debit spread. Don't want any unexpected surprises. TIMING seems to be the thing. But only got two weeks on it so that opinion has no foundation.


Still 50 debit spreads running at a time, should reward you well, without worrying about holding too many contracts of any one thing. I think it was Whispering Leaf that tuned me in? Then I've accidently evolved from being interested in the Condor, to just using the debit spread.

I'm thinking of starting to trade the indexes basically, instead of stocks, unless I can get my timing better than I am right now. That way, I figure if I can TIME the entries, I can increase the contracts a bit, to make it worthwhile.

Anybody got any favorite timing indicators or anything?
 
You must log in or register to reply here.
Back
Top