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Post by wakawakawaka3 on Jun 7, 2013 20:54:14 GMT
Anyone has any idea? I've done one in Grpn just to test the strategy. The only way this seems like a good idea strategy is when a small stock is at a high IV percentile. If it's a +$25 then a move one way or the other would kill you if vol doesn't come down. Am I thinking about this the right way? Anyone has any confirmations or Tom and Tony video wisdom on this issue?
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Post by ThetaJunkie on Jun 8, 2013 0:42:26 GMT
I think GRPN is too small for the strangle strategy. With extremely small priced stocks there isn't any room on the strikes; you pretty much have to go one strike OTM. GRPN is $6.9; the Jul 6/8 strangle is the only OTM strikes that give you any credit, which is .41. The buying power reduction is about 225. That gives you around 18% return. For 42 days that's less than .5% per day. Our break evens are 5.59 and 8.41. Looking at the probability of ITM/OTM we can see the downside probability is roughly 17% and upside is about 16%. Your strike width is 2. Here's the analyze tab: Now look at TOL. It closed at $33.5.
If we look at the strikes with approximately a 20 delta we can investigate a Jul 30/37 strangle. You can collect $1.10; the initial buying power is about $450. That gives us a 24% return, or just over .5% per day. Our break-evens are 28.90 and 38.10. Looking at the option OTM probabilities gives us about 17% chance on downside and 14% on upside. Here your strike width is 7 points. Let look at the graph: (why does analyze tab show different probabilities than option chain? I'll have to find TP's discussion on Liz and Jenny show about that; basically the formula the analyze tab uses is different so gives slightly different results - but hey its close enough) Hmmm, if TOL gets some more IV, I may put this strangle on. Oh I can't wait to grow the account to qualify for portfolio margin The issue with larger stocks is the BP requirement when your strikes are tested. If you look above that'll be about $1000 or little over 2x initial. BTW, with GRPN the BP requirement is a little under 2x the initial so not much different. If this is (potentially) too much, then you should look at stocks in the $20's then $10s. So what can you do to reduce your BP exposure? Turn the strangle into an iron condor. But not a dinky 1 strike wide on the wings IC but an IC with the long options as far away as is comfortable. If you look at the figure above you'll see a 28/30/37/42 iron condor for .75 (unfortunately right now TOL's put strikes are limited on the downside). But wait, you may say, that doesn't fit our collect 1/3 the width of the strikes requirement. True, but we're trying to reduce our margin requirement for a strangle so maybe we can bend the rules? If you have an IRA and can't trade naked calls, well you can do that same type of thing: sell the Jul 30 put and sell the 37/42 call spread. That trade is allowed. Is it worth it? Well in an IRA that trade will require 3500 and you'll collect $1 which gives you 2.8% return. I wouldn't probably wouldn't do it but hey its an option. Whew, I've rambled on here and I'm not even sure I helped. Peace
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Post by wakawakawaka3 on Jun 8, 2013 1:07:26 GMT
Awesome info man, especially about the BP effect and what we can do to mitigate it. But I was talking about the Straddle not the Strangle. How would you go about deciding if you should put a straddle strategy on for an underlying that's not ridiculously small?
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Post by yello62 on Jun 8, 2013 1:26:07 GMT
good info t-j, keep it coming.
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Post by ThetaJunkie on Jun 8, 2013 2:05:28 GMT
Awesome info man, especially about the BP effect and what we can do to mitigate it. But I was talking about the Straddle not the Strangle. How would you go about deciding if you should put a straddle strategy on for an underlying that's not ridiculously small? Whoops I misread. Short answer: I've never put on a straddle on any underlying Not even for earnings. Its just like you said, any move just kills you. The only adjustment you can make will turn you inverted. While that's not the kiss of death, it makes life complicated for me. I will, however, put on a straddle/strangle swap for an earnings play sometimes. I don't think Tom or Tony ever does that since for earnings they want to be in and out. With straddle/strangle swap I've always had to hold it for a bit because of the long strangle.
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Post by shelly on Jun 9, 2013 15:01:01 GMT
Are you ever nervous about doing a naked put and then the market goes down and vol. increases and you get crushed? I know that is a stupid question and you can not trade and be afraid but these are things I think about I guess I should just stop thinking and stop over analyzing
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Post by ThetaJunkie on Jun 9, 2013 17:10:04 GMT
Are you ever nervous about doing a naked put and then the market goes down and vol. increases and you get crushed? I know that is a stupid question and you can not trade and be afraid but these are things I think about I guess I should just stop thinking and stop over analyzing Nervous? Not really. But that is a reason Tom & Tony haven't been putting on a lot of naked trades across the board. They put them on underlyings that have high volatility already; looking for direction and/or vol crush. Do I have naked puts on now? Sure do: - ABX (Jade Lizard) - IV 51% / 51 percentile
- CLF - IV 62% / 45 percentile
- FB - IV 38.5% / 24 percentile - bad trade, I've had to roll it
- GDX (Strangle) - IV 44% / 69 percentile
- TOL (Inverted strangle) - IV 39.8 / 52 percentile
- TSLA (Strangle) - IV 75.7% / 67 percentile
- WLT (Strangle adjusted to a straddle and a naked to help) - IV 85% / 63 percentile
- YHOO (STILL!! ugh) - IV 34.7% / 58 percentile
1 is a clear winner (couldn't get fill Friday) 1 just got tested the short strike 1 is just now testing the break-even as of Friday 2 are just waiting for time decay The rest are clear losers. So? I'll either roll them and extend the duration. Or I'll get put the stock and so begins the Wheel of Fortune.
I just have to keep funds available; don't be all in. Back in April I tweeted out that bonds were going to cause me to shut down my business. Not because I didn't have any net liq, it was because I was running out of available funds.
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Post by shelly on Jun 9, 2013 19:34:27 GMT
Thanks so much Theta Junkie for your response. I wish I could help you with your diags. but I have only done a couple and I rolled until they became a vert. I guess they were pretty successful.
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Post by shelly on Jun 9, 2013 20:10:07 GMT
Theta Junkie, When do you decide to roll and when do you decide to get assigned and begin the wheel of fortune? Does it depend on the price of the underlying? If it is a Jade liz and your put side is itm do you roll and then sell a call one strike OTM. T and T talked about that on friday from a confirm and send question. Thanks for all your help! Do you trade full time?
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Post by ThetaJunkie on Jun 9, 2013 21:54:15 GMT
Theta Junkie, When do you decide to roll and when do you decide to get assigned and begin the wheel of fortune? Does it depend on the price of the underlying? If it is a Jade liz and your put side is itm do you roll and then sell a call one strike OTM. T and T talked about that on friday from a confirm and send question. Thanks for all your help! Do you trade full time? I'll copy the Jade Lizard question and post it in that strategy. So when do you decide to roll and when do you decide to get assigned? The great thing about nakeds is that they are the easiest strategy to roll. Ever try and roll an iron condor or credit spread? If its ITM then basically you're screwed. But for a naked, unless its REALLY FAR ITM there will be premium for you to sell and extend your duration. I prefer to roll and will usually wait as long as possible. If your naked is ITM, as you get closer to expiration its delta gets higher so its affected by price move more d its theta evaporates. So you've gone from a theta decay duration strategy to a directional strategy. I think you roll (or close if yer a quitter! ) when your position no longer matches your strategy. Take FB, say you just happened to have a short Jun 26 put. With FB at $23.3, the extrinsic value left in that put is about a nickel. So its theta is gone and its now a pure directional play with a delta of .91; its basically 100 shares of FB. You can close that Jun 26 that put (by itself and not pay the commission) then sell the Jul 26 to collect a net .21. Is that great? No, but its better than a nickel. Your delta will drop from .91 to .81 so its STILL very directional. Now you can also sell either the 24, 25 or 26 call if you want to reduce your delta and raise your credit. Or you can leave it if your really bullish or wait and decide later. That just depends on your view of FB. In the meantime you're at least collecting something. If I had the Jun 27 put, I wouldn't roll it for .12; actually looking back at this, I probably shouldn't have looked to roll it at 26 until the final days of expiration. But if I had waited and FB continued to drop, there wouldn't be any premium to collect on the roll and I'd have to take possession of the stock. I don't believe Tom or Tony every willingly take an assignment at expiration; do they? It seems Liz and Jenny will take assignment. And hey folks, if I'm doing something wrong or different then you PLEASE speak up as I love to learn. ------ Oh I realized I didn't answer your last question about trading fulltime. If you knew my story... well I don't think you'd be listening to me at all The short answer is no, I don't trade full time as in its my only "job". We should have a place here where we can tell our stories if we want
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Post by shelly on Jun 9, 2013 22:43:54 GMT
That would be fun since we all have a story. It sounds on paper that you know what your doing and I appreciate all the insight. I like the jade liz strategy but it does eat alot of commissions especially if you do the amended jade liz and sell 2 put spreads
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Post by ThetaJunkie on Jun 9, 2013 22:54:11 GMT
That would be fun since we all have a story. It sounds on paper that you know what your doing and I appreciate all the insight. I like the jade liz strategy but it does eat alot of commissions especially if you do the amended jade liz and sell 2 put spreads At 1.50 / contract it should cost you $9 round trip. I like to put on a Jade Lizard at 1.15 or higher. (This should probably be moved or copied to Jade Lizard area ). If the price breaks the long call strike I close that puppy. The profit curve of the Jade Lizard will have you making more at that point then waiting until expiration. If the call spread falls below .10 I'll close it or roll it; I usually just close it.
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Post by shelly on Jun 10, 2013 17:28:24 GMT
After watching AL on Liz and Jny show talking about cost basis reduction...why am I not just doing that??? I am really questioning myself about that
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Post by MaxPowerstoni on Dec 29, 2018 13:33:36 GMT
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Post by MaxPowerstoni on Dec 29, 2018 13:35:45 GMT
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