Trade16 -Standard and yet Devious

Terrapin Trader,


1 Sigma 40DTE

As shown in the calculations, this is a one standard deviation strangle. Sell one put and one call with a Delta of roughly 0.16. The premium here is 29 for the put,15 for the call.So for roughly £1500 in margin,you would be collecting 29+15(x£10)= £440. What could possibly go wrong?

https://www.tastytrade.com/tt/learn/standard-deviation

Our Good Chums Tasty Trade

This is the stock in trade with the esteemed Tom Sosnoff and Tony Battista. (Typically they like 45DTE- days to expiry).They have done extensive research into these trades and look at closing out at 50% profit and other variables. The problem with these is what to do when they go wrong. With FTSE at 7188 it’s a short step to 7375 or 6850. Though in fairness that’s 5% on the downside. The upside may be a problem. Maybe 5% is way too conservative to the downside. Yikes!
Volatility:  VFTSE is  low at 11.32%, VIX is 10.97.I’d be inclined to wait for better prices,we like to sell when volatility is high.

When Strangles Start to Hurt

Anyone can place these trades, and when I first discovered strangles I thought this was free money- and for a while it was. The key to great trading is knowing what to do when things go wrong. I will not disclose any solutions for now,though there are several-let’s see how this trade works out. It is far from ideal-theta(time decay) is not at its optimal and every day brings a sharp intake of breath as events unfold. I have not traded in a more unpredictable time- even the UK’s 7/7 saw FTSE down only 75 points or so. But….. the markets just look wrong to me. They cannot of course price in exogenous events, but they seem to have priced in a sort of Utopia. This is simply my impression but it has stopped me from trading in size.

 

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

5 Comments

  1. I just hope the missiles aren’t flying next week as Iran seems to be quite jolly about these sorts of things

  2. I shopuld add that there is an argument that says you should trade 100% of your account as margin,and be in the market constantly,and adjust when you have to.

  3. Today (Saturday 11th Feb) this strangle is now trading at 35, or £350, so that’s £90 profit, or £900 on 10 lots, which would require about £15,000 in margin.
    To be clear margin just means having that money in your account and the minimum really for options would be £25,000. That does not represent total risk.
    Margin can also be in the form of stock or bonds,it does not have to be cash.
    Again this is a trade that I do not like as adjustment when the market moves big can be horrible, and I do NOT like to roll into next month-for me you thn have opportunity cost.
    Rule 1 NEVER be a forced buyer or seller. We are not forex, or futures traders who get smashed to bits every week, we have choices

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