When fundamentally or techically would you use backspeds or straddles?

R

Robertwiz

Hello,

Of the following two option strategies:

1. Long straddles

2. Backspreads which allow you to make money regardless of market direction. ( For instance, in the case of call backspreads, you can make a little if the stock drops and ALOT if it rises fare.)

When would be some good fundamental reasons to trade Straddles and backspreads and when would be some good technical reasons to trade Straddles and backspreads?

Thanks
 
Quote from Robertwiz:

Hello,

Of the following two option strategies:

1. Long straddles

2. Backspreads which allow you to make money regardless of market direction. ( For instance, in the case of call backspreads, you can make a little if the stock drops and ALOT if it rises fare.)

When would be some good fundamental reasons to trade Straddles and backspreads and when would be some good technical reasons to trade Straddles and backspreads?

Thanks
More...

Both are long vega, so they are sensitive to changes in vol (both will lose if vol falls).

Long straddles are suitable when you think the underlying will move significantly, or whip around enough to offset theta decay. Or when you predict that vol will rise.

Backspreads have a similar relationship wrt vol, as well as gamma/theta profile. They can be used to exploit skew depending if they trade for credit/debit.

Mainly, make sure you figure in changes in vol in your model, and not just price action, or else your position will be a loser and you'll be wondering why. It's quite common to right on vol/price and still lose money.
 
Quote from Doobs789:

Both are long vega, so they are sensitive to changes in vol (both will lose if vol falls).

Long straddles are suitable when you think the underlying will move significantly, or whip around enough to offset theta decay. Or when you predict that vol will rise.

Backspreads have a similar relationship wrt vol, as well as gamma/theta profile. They can be used to exploit skew depending if they trade for credit/debit.

Mainly, make sure you figure in changes in vol in your model, and not just price action, or else your position will be a loser and you'll be wondering why. It's quite common to right on vol/price and still lose money.
More...

pretty girl stocks.. parabolic situations.. way otm ratio backspreads..
straddles.. never played that game much..
 
Quote from Robertwiz:

Hello,

Of the following two option strategies:

1. Long straddles

2. Backspreads which allow you to make money regardless of market direction. ( For instance, in the case of call backspreads, you can make a little if the stock drops and ALOT if it rises fare.)

When would be some good fundamental reasons to trade Straddles and backspreads and when would be some good technical reasons to trade Straddles and backspreads?

Thanks
More...

I trade long straddles (or strangles) on stocks that are about to release their earnings. The idea is to buy a strangle 2-5 days before the release and sell whenever there is a +10% gain or right before the release (for gain or for loss).

This position benefits from a possible stock move as well as IV rise. Another benefactor is the overall market big move in one direction or another. When that happens it takes a lot of stocks with it.

The average winner and loser in this strategy are about the same size (10% of the position) but winners outnumber loser 65 to 35 or so.
 
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