This post is going to be a little bitter...
I did the APOL short strangle on earnings:
Dec 85c/65p for around a 4.50 credit.
I ended up loosing 350 on the trade b/c APOL IV increased AND it gapped down 16% today to around 60. I understand that I can't control the news. However, I am beginning to get frustrated with the short strangle strategy. If I do make money, it's only a small percentage of the possible gain and an even smaller ROI related to the margin held to place the trade...I'm talking like 1-5% maximum. On the other hand, if I loose--I loose big...ISRG (-1700) and APOL(-350) for example.
In sharp contrast, I placed a totally speculative trade on BIDU for it's earnings announcement:
450/460 bull put spread for 6.00 credit (total risk was $400). BIDU gapped down huge on the report and I'm only down $180.
I know options trading is about more than direction--you have to trade the Greeks. However, I have had much more success with inverted calendars that are ratioed toward my bias (bullish, bearish). If I'm wrong, I only loose a little. However, if I'm right (like FDO, COST, or BXP), I make some descent money. The only drawback of the inverted calendar is the margin held is larger than a short strangle...but at least on a big move (that the market maker's didn't even expect), you're more probable to make money rather than loose money a large percentage of your account.
So, sorry for the ramblings. Maybe I keep hitting the Black Swan. I just don't see how you can soley base your business (as a retail trader) off of being time and vega positive--you have to throw some positive gamma and directional plays in!
What an awful post after being absent for the last few weeks. Sorry.
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Man Shawnta, you've been getting knocked around eh? I really do feel for you, I've had the same thing happen with too many short strangles, I'm not sure if there's been an unusually large amount of gappers, or we're just picking the wrong ones! Problem is, the ones with juicy premiums turn out to be that way for a reason! I may go back to condors instead of these double-naked deals for awhile. The market seems as though it may be taking a turn for the worse, or at the very least leveling off.
ReplyDeleteThanks for the sympathy Justin. I'm sorry you've had a tough time with them too.
ReplyDeleteAt least with the condors, your margin is typically smaller, there is a downside maximum and I think adjustments out of them seem easier. I haven't put on a condor for so long, but after the 27% increase in the VIX today, I'm definitely going to be looking at them (even thought they're pretty IV neutral). I feel with the uptick in the VIX the market isn't lying to itself anymore...or maybe the market isn't lying to me anymore ;o) whatever, the market is always right; I'm just trying to ride the waive.