Straddle Strategies

#1
Hi Community Pals,
I was wondering if anyone amongst us is a seasoned straddle strategist into this segment of the market for a decent length of time. If the initial conditions match I would be enlightened to know if investing time in this is worthwhile as on paper it sounds good and from all possible angles it seems alright but what is the practical experience of someone in this area. Not that I am new to options but straddle trading - yes, new into.
 
Last edited:
#2
Losses of upto 50-70% can also be there in rangebound volatile mkt.......
but if carefully u can exit ur both positions(call & put), then u can not only easily prevent losses but also make nice profit........
Chk this out :-
 

AW10

Well-Known Member
#3
Hi Community Pals,
I was wondering if anyone amongst us is a seasoned straddle strategist into this segment of the market for a decent length of time. If the initial conditions matches I would be enlightened to know if investing time in this is worthwhile as on paper it sounds good and from all possible angles it seems alright but what is the practical experience of someone in this area. Not that I am new to options but straddle trading - yes, new into.
Straddle is suitable for the time where an uncertainty is about to unfold (e.g. breakout is on the cards) and anticipating any directional move has very low probability of being right. Market behaves in normal range almost 90% of the time so this strategy gets right setup only 10% of the time.
This strategy is looser in normal market conditions because
1) It is costly strategy (one has to buy 2 options)
2) It is certain that one leg is going to be the looser after the breakout
3) Time decay is going to hit twice as buyer is long 2 options

For above reasons, I prefer to sell straddles in NORMAL market condition to novice traders who often gets fascinated by this strategy as it addresses the major problem of deciding the direction of the market.

Warning - Selling option involves very high risk so please understand risk management
before selling options.

Happy Trading.
 
#4
Hi! AW10,
Thanks for your opinion, I stupidly forgot to mention that I'm always on the short side of straddles, and that if you'd have some suggestions or strategies to offer for a short trader. Incidentally what I was looking for exactly was this: Once your position becomes close to being a losing position what are the moves available with the straddle writer? Thanks.
 
Last edited:
#5
Hi! AW10,
Thanks for your opinion, I stupidly forgot to mention that I'm always on the short side of straddles, and that if you'd have some suggestions or strategies to offer for a short trader. Incidentally what I was looking for exactly was this: Once your position becomes close to being a losing position what are the available moves to the straddle writer? Thanks.
I have been selling straddles for a long time and my experience is as under :

1) Straddle is to be sold when there is no major event expected in the market.

2) When straddle trade goes bad it really goes bad. So my "must get out " stoploss is when premium on one leg (which is going against you ) exceeds total premium collected.

3) I protect the straddle with short/long position in futures.To illustrate suppose I have sold Nifty 4300 straddle,and nifty goes up,I buy a mini at 4400,another one at 4500,one more at 4600.Each lot has a stoploss of 50 nifty points so after buying 4400 and 4500,if nifty backs to 4450,I sell a mini bought at 4500,when it goes down to 4350,sell the mini nifty future bought at 4400 . This protects me in a strong move against me but it also gives me few nasty heart burning stoplosses.Gap up/down makes life more difficult but on the whole a very profitable strategy for a lazy trader like me !!!

Best Wishes,Trade well !!!

Smart_trade
 

bandlab2

Well-Known Member
#6
i always start selling the straddles some 40 days before epiry. means 10 days before current expiry. for october straddle, i will start arond 17th sept

i close my position if i get 50% profit. after some days i may start again. always sell one leg when there is huge gap up/down. then sell the other leg if market goes other direction. but dont wait more than a day or two

ideally both legs should be at same premium. this makes sure you are in the center.

right now i have 3 lots of 4200 put write and 4500 call write. total premium got is 180 rs per lot. right now its aroud 145. recent gap ups have ruined my profits a bit.
 
#7
Dear Smart_trade,
Wow! I am impressed by the strategy you employ to say the least. But I need to really think deeper before I try it out? I am not clear why your have chosen the 50 nifty points stoploss or why you go long on the mini future at a strike? Why not at say XX75 and again if there is any mathematical or statistical co-relation to the whole theory of going long with straddles at, you know, strikes! Trust me, your post was a steal if not a bargain! Can you suggest some related reading? Thanks, of course!
 
#8
Dear Bandlab2,
First, thanks for sharing the line of thought. 40 days ahead and 50% target is interesting enough!
Second, tell me from your experience which of the two have you found better... a 4200 & 4500 strangle or say a 4300 or a 4400 straddle, for the strategy you employ?
And lastly, thanks for giving the very valuable tip of starting a straddle on the waning leg of a gap up or down move. (Guess we forget such tips in the heat of the moment.)
But again from your experience, how often have you made it and how many times did you miss the gap up/down second leg within the two days you've prescribed?
Thanks.
 

arnav_rulz

Well-Known Member
#9
i always start selling the straddles some 40 days before epiry. means 10 days before current expiry. for october straddle, i will start arond 17th sept

1 thing i must say....you have chosen almost the Perfect time to make the strategy ...

Reason :-

1)Premium is pretty high
2)Liquidity Starts ...
3)Premium starts to fall during the last week b4 expiry... so a square off On in the opening week on next month can easily give you good profits if the market does not take a positional move ...
 

bandlab2

Well-Known Member
#10
Dear Bandlab2,
First, thanks for sharing the line of thought. 40 days ahead and 50% target is interesting enough!
Second, tell me from your experience which of the two have you found better... a 4200 & 4500 strangle or say a 4300 or a 4400 straddle, for the strategy you employ?
And lastly, thanks for giving the very valuable tip of starting a straddle on the waning leg of a gap up or down move. (Guess we forget such tips in the heat of the moment.)
But again from your experience, how often have you made it and how many times did you miss the gap up/down second leg within the two days you've prescribed?
Thanks.
Normally i dont prefer straddles as the 'safe' trading range is less compared to stadle. for strangle (4200 put at 75, 4500 call at 80) the range is 4045 - 4655. whereas for stradle (4300 call at 140, 4300 put at 95) the range is 4065 - 4565

i start with 1 lot of stradle 40 days before. after that whenever i see gap ups, downs i initiate 2 lot. my capacity is only 2 lots, i also trade future so need some margin. i may not be as successful on 2nd leg as i would like it to be. but still some thing is better than nothing

one more thing to note always sell stradle when volatality is more and over it when volatality is less. premiums are lesser when volatiity is less
 

Similar threads