Straddles with weekly options

[mjim]

Does anybody do straddles with weekly Options ?
- Total cost is less than a monthly but it also means lot less time for the underlying to move in one direction
- What indicator one can use to back test and see the trading range of the underlying to see if it moves sufficiently in a week?

 

[minwa]

- What indicator one can use to back test and see the trading range of the underlying to see if it moves sufficiently in a week?

Are you proposing a strategy to buy every week ? I don't think it will work, market conditions change - but don't take my word for it..do your own studies.

You do not need any indicator. Simply use the price of the underlying.

 

[mjim]

Are you proposing a strategy to buy every week ? I don't think it will work, market conditions change - but don't take my word for it..do your own studies.

You do not need any indicator. Simply use the price of the underlying.

Yes buy a straddle made up of weekly options perhaps with 3 days left to expiary
For example
ES as underlying futures and weekly Es options may be costing 5points x50 x2 = $500 so the Es needs to move more than 10 points in either direction !
Or Options on CL futures assuming it moves sufficiently on Wed announcement!

 

[Virge666]

Yes buy a straddle made up of weekly options perhaps with 3 days left to expiary
For example
ES as underlying futures and weekly Es options may be costing 5points x50 x2 = $500 so the Es needs to move more than 10 points in either direction !
Or Options on CL futures assuming it moves sufficiently on Wed announcement!

There is a lot of Gamma risk with holding to expiration. You almost turn it into a binary event, not quite, but close.

I like a Calendar or a condor/iron fly at the other end. So buy on the Thursday/Friday and close on the Tuesday or wednesday... more of a chance to pull out 10-20% consistently.

Your way may indeed work - but if you get a 1-1.5 SD move and you have you hat in your hands. Like last Friday . . . When you trade a bit further out - you still get the occurrences, but you just get that much more time to adjust or get out.

Lastly - assignment risk is an issue with holding them...

 

[mjim]

what would be the factor to consider when buying straddles? Time frame? Trading range? and which indicators can help in this regard? also is there any way to back test this strategy? I thought it can be done with looking at underlying price (for example ES or CL) but that study would not be complete without knowing the Options data!

 

[Virge666]

OK, Straddles are a bit of fun. but you going to need a lot of capital to do them as they are undefined risk trades. I have a couple on now and each one is about US$2800-4000 in buying power required to keep them on.

You want to get about $5 in premium for the trade and the research i have seen says take profits early, anywhere from 25-33%. but dont be afraid to be more aggressive and you can see profit disappear quickly if the underlying moves. Also being aggressive with profits frees up you capital.

It is not a beginners strategy as you need to know what to do when it moves against you. An Iron Fly is a synthetic straddle with some wings to help define the risk and limit the capital required. And then you know how much can make and how much you can lose. You're not going to wake up with a $1500 loss on a product you only collected $500 on.

As for weeklies, IMHO, you have nuts in your head doing straddles, you may as well just head down to the casino. Calendars, butterflys and condors for weeklies. Check out Dan Sheridan's stuff on managing a 10K portfolio with weeklies. it is gold and cost all of $300 for the 3 week live course. he runs them out of webinars and you can participate. YOu can get the first lesson for free on YouTube.

I run my straddles from about 40-50 days out and i take profits as early as i can. i dont mind being assigned on one side and then i will sell more options against it until i make my money back.

Also a fan of selling the 30 delta strangle - good credit received and a little more wriggle room for a market i am asleep for 70% of the time.

Good luck.

 

[minwa]

OK, Straddles are a bit of fun. but you going to need a lot of capital to do them as they are undefined risk trades. I have a couple on now and each one is about US$2800-4000 in buying power required to keep them on.

You want to get about $5 in premium for the trade and the research i have seen says take profits early, anywhere from 25-33%. but dont be afraid to be more aggressive and you can see profit disappear quickly if the underlying moves. Also being aggressive with profits frees up you capital.

It is not a beginners strategy as you need to know what to do when it moves against you. An Iron Fly is a synthetic straddle with some wings to help define the risk and limit the capital required. And then you know how much can make and how much you can lose. You're not going to wake up with a $1500 loss on a product you only collected $500 on.

As for weeklies, IMHO, you have nuts in your head doing straddles, you may as well just head down to the casino. Calendars, butterflys and condors for weeklies. Check out Dan Sheridan's stuff on managing a 10K portfolio with weeklies. it is gold and cost all of $300 for the 3 week live course. he runs them out of webinars and you can participate. YOu can get the first lesson for free on YouTube.

I run my straddles from about 40-50 days out and i take profits as early as i can. i dont mind being assigned on one side and then i will sell more options against it until i make my money back.

Also a fan of selling the 30 delta strangle - good credit received and a little more wriggle room for a market i am asleep for 70% of the time.

Good luck.

"what would be the factor to consider when buying straddle"

The OP wants to buy not short straddles

 

[minwa]

what would be the factor to consider when buying straddles? Expansion of volatility or price Time frame? Any Trading range? Small with expectation of changing to large and which indicators can help in this regard? Price/Implied Vol also is there any way to back test this strategy? Yes TOS/Optionvue probably others too I thought it can be done with looking at underlying price (for example ES or CL) but that study would not be complete without knowing the Options data! Correct, you will need options data

 

[Virge666]

My apologies, buying straddles.

The Optionetics guys back in the early 2000's were pushing this kind of trade but it was only a 3 month out trade with a bunch of adjustments to protect your trade, you can find this stuff for free on the internet.

There is also a bloke on the interweb who does a straddle purchase with a bunch of strikes also with laddered strikes and he says he has been 5% a month for the last two years...

But for the ES/SP500, the tastytraders have done a few tests on the last 10-15 years worth of data, they say it works sometimes, but over the long run...meh

You will have to fast forward through the chat to get to the slides and research

here you go... best case scenario for buying a straddle
https://www.tastytrade.com/tt/shows...ing-best-case-short-term-straddles-08-10-2016

and here is one of buying in Low IV
https://www.tastytrade.com/tt/shows/market-measures/episodes/buying-straddles-in-low-iv-04-19-2016

and here is one on Buying Straddles into earnings, which i use to think was a good idea.
https://www.tastytrade.com/tt/shows/market-measures/episodes/long-straddles-into-earnings-07-14-2015