When to adjust

[Andy_Trade]

Quote from optioncoach:

I have done it mainly going long the straddle and shorting or going long the stock to flatten deltas and then daily monitor the chart.

For me I prefer going long the straddle when IV is low because for me the bigger risks of a stock position are sudden gaps or a few days of strong moves and owning the straddle lets me not worry about that. The stock could go nowhere of course but that is a slow bleeding death and easier to deal with over time if I need to bail.

I look for stocks with low IV relatively, perhaps low IV compared to statistical IV spike, an upcoming catalyst, and a stock that is know to have some moves. COST was a recent example where IVs bottomed out and earnings were 3 weeks away with history of nice moves on good or bad news.

I do this rarely as good opportunities do not present themselves always and I am lazy to search for them daily.

When deltas go + or - 100 I short or go long stock to flatten and revaluate every day.

This is something I will do when an oppty presents itself, I do not recommend this as a portfolio strategy or putting a ton of of your portoflio into it. If you load up on a ton of these positions you will just churn your account. Wait until sweet looking oppty comes around and do it sparingly.

So it's best not to use this strategy all the time. Would a good time to use it be around earnings reports for certain stocks?

What's the best strategy you like to use for the bulk of your portfolio if long straddles/strangles opportunities don't always present themselves?

Thanks

 

[spindr0]

So it's best not to use this strategy all the time. Would a good time to use it be around earnings reports for certain stocks?

That is precisely why I have been DN trading a couple of straddle positions in real time. I do calendar straddles/strangles for earnings releases and for a long time, I have observed the steady IV increase the weeks before the EA. So I'm hoping to get a trading feel for the idea before combining the two.

 

[spindr0]

My view here is where the individual skill comes in. Using the ol COST position as an example. I went long the 57.50 straddle when the stock was trading around that amount and short a bit of stock to flatten the deltas

From what I've seen, you need an edge with this. You either have to get the direction right before adjusting orr get a bump in IV. Or both. Or just get lucky enought to stumble into a stock that keeps reversing! Since I'm not particularly good at either, I figure that the market should do the heavy lifting for me. Eg., positioning myself before/as pre earnings announcement buying raises IV. Time will tell whether this is a better approach for me.

If I ignored the price chart and my own bias I would have shorted more stock and reduced my chances at a profit.

I think that more a function of a biased person being correct. Had you followed the chart and shorted more shares and had COST dropped instead of rising then that shorting would have increased your chances of a profit

 

[El OchoCinco]

Quote from spindr0:

From what I've seen, you need an edge with this. You either have to get the direction right before adjusting orr get a bump in IV. Or both. Or just get lucky enought to stumble into a stock that keeps reversing! Since I'm not particularly good at either, I figure that the market should do the heavy lifting for me. Eg., positioning myself before/as pre earnings announcement buying raises IV. Time will tell whether this is a better approach for me.

I think that more a function of a biased person being correct. Had you followed the chart and shorted more shares and had COST dropped instead of rising then that shorting would have increased your chances of a profit

Well that is what we spoke of earlier. With COST, IV had dropped noticeably and earnings were coming out in a few weeks. My goal was not to go delta neutral all the way into expiration, just to read the mvoes and stay delta neutral as long as I could. When the stock was moving out of its range I stopp shorting stock naturally and this is an individual choice that takes it away from straight delta neutral trading.

If I followed the plan and shorted more shares I still would have made money on the large move but much less. However as I said I decided at one point I wanted a positive delta bias. If the stock crashed after earnings I still would have only seen a limited loss and would have had to cut nad move on. But I had a bias going in for sure.

I do nto think you need a bias going in for each position but if earnings catalyst is coming then you can adjust as the stock mvoes and do a reevaluation daily.