re: option straddles now down 14%
Straddles 1,2 and 3 were posted in the options forum. This current basket, finished today is straddles 4.
Straddles no. 4 post mortem Closed out up 146%, just plain lucky, thx to war rally.
Nab mar 29.50 -17% Call was .50, now .81. Put was .685, now .20, Nab had a good rally today, and it still didn’t pay well. I had a big decision to make when buying as nab was 29.26, and I tossed up between 29 and 29.50 strikes. 29 would have paid much better, as the put could be worthless and the call much higher. I thought nab down was more likely, so I went 29.50. Oh well.
NCP mar 9.50 +55% Call .525,1.30, put .275, .05 straddle .80, 1.35 So Arthur wanted to know how straddles made money, this is a good example. The calls gone up.775, while the puts gone down .225 all because ncp went from 9.75 to 10.72 in under a week. The stock moved more than the cost of the straddle.
CBA mar 23.50 -04% Call .41, .775, put .605, .20, straddle 1.015, .975 Ul went from 23.27 to 24.08, but straddle still didn’t make money. See how the stock moved by less than the 1.01 cost of the straddle? Both banks fired up more after I closed this position, but ncp and rio dropped back by more.
RIO mar 30.50 +113% Call .84, 2.39, put .84, .05, straddle 1.31, 2.44 Rio always looked overcooked after it dropped 1.00 for exdivvy, and then fell too far again. See how much the call moved up? Who cares if the put is worthless. Winner, winner, chicken dinner.
Straddles 3 Post mortem Finished up +56%, I day before expiry, whew. Cba –44% I use 3 main custom indicators in my charting, and no, I wont tell you what they are. 3 volatility indicators rose, but cba lost value. Ul dropped, then rose a lot, then dropped back. This sort of movement is within what I would expect for rising vola. This position was in profit only 2 days ago, but I hung on to it, as wbc was rising by more than cba was losing. Total ul (underlying stock) move.43, cost of cba straddle was .64. Loss because ul didn’t move by more than cost of straddle. Acceptable, and within vola limits.
Ncp +4% 3 indicators rose ncp cost .54, ul dropped .62 close to break even, ncp never really broke out, move of .60 over 7 days is just avge for this stock. Needed more time and movement.
rio –46% 2 rose, 1 fell. Volatilty almost even steady cost .84, ul moved only .23 so no surprise that this lost money. Rio consolidated, and was only 4 days from going exdivvy and I didn’t know that, so important lesson there.
wbc +153% 3 big rises cost .375, move .94. Totally unexpected, and I got lucky.
Anz –9% Again all vola indicators rose, and anz fell a lot, then rose a lot, then settled back down to close to where it started. Like cba, this was in profit only 1 day ago, and hi vola seems to indicate a stock can jump around a lot. Lesson- money management can only be applied to the whole position, and not one stock alone.
Comments It could be said that the indicators are not exaclty great at picking stocks that are about to breakout, but I think that’s a little unfair. Id be more inclined to say that volatility is fickle by nature, and that the time frame is too short (avge trade 7 days) for the volatility to assert itself as a big move. There were no predictions of volatility rising that turned out wrong, where vola fell. This is significant. The real issue is that the stock still has to move by more than the cost of the straddle. Time for another filter, say probabilty of paying off , S Duck? You could indeed be right. Volatility alone, rising, isnt enough.
The options have performed true to BSOPM, Rem, there is no suggestion that unfair values played any part, on the contrary values are very fair. IVs were usually 5-8% higher than 20d HV, as expected.
Those who understand volatility, will see that when vola is high, there is a propensity or inclination for the ul to move wildly in different directions. So moves of +15% then –15% within hours is understandable. This is something I will face all the time, I expect. It makes money management too difficult for a 20% stop loss. Spreading the position over 4-5 stocks seems to be an important key. The whole position acts like an oscillator, going from good profit and then large loss, then back to good profit. Part of this is in the hedging nature. We can afford to sleep well knowing that we hold puts AND calls. Our only enemy is that the stock will do nothing, and time decay will eat us.
Im inclined to want to buy the positions as we pass thru the strike price exactly, as I don’t want to pay too much intrinsic value in any direction. When the stock is halfway between strikes, I must make a decision about which strike to buy, and thus I take a long or short view to some extent, which is what I want to avoid. Will I buy the strike above, where the puts are in the money, or the strike below where the call are ITM? Etc.
So the washup is, that when we take calculated risk, and spread that risk over several stocks, we seem to get lucky. I think being satisfied with a reasonable profit (instead of being greedy) for a reasonable risk, is the key. I know Im due for losses soon. Perhaps the times and seasons are with us so far.
Sorry to dribble on so much about all this, I hope some of you are interested in this. I’ll post a lot less of the hard data, now that you all (hopefully) see what Im doing. Future posts will be much more abbreviated. No need to post the call and put values, just the total straddle cost.
