Spy Straddle Experiment

Some details on my new investment experiment, the perpetual SPY Straddle.

I've been playing SPY options for a few months now. I've won some and I've lost some! There's definitely been times when I was extremely correct and sold my calls for $1000 after paying $400 for them.  And there's been times when I watched my $500 become worthless because I picked the wrong direction (and don't have a stop loss).

I am not typically bullish or bearish on SPY. I just play it as I see it. If it's at all time highs I buy puts. If it dips $6 in a day I buy a call. Lately I've found that just waiting until the end of the day and buying an "at the money" option for the direction I think it is going is my best play, and then typically selling it the next day.

Until that didn't work anymore!

So, my latest experiment is the straddle. The perpetual straddle. You'll see what I mean soon.

A straddle is an options strategy where you buy a call and a put at the same strike price at the same expiration date. I would assume "at the money" so that's what I've been doing. It wouldn't make sense to buy it where one leg is deep "out of the money", I would think.

The idea behind it is you think there's going to be a big movement either way, but you aren't sure (or in my case, don't want to have to think about) which way it's going to go.

SPY is a good candidate for this because it can swing $6 in a day. It can also trade sideways which would be devastating, and I'm fully aware of the risks :)

To continue on the idea behind a straddle, the hope is that one leg of the trade covers the cost of the other leg, and then some, so you profit in the long run, but it will be by less than if you were to just guess correctly and purchase a single call or a single put, depending on which one was the correct one.

My current position is a $449 Straddle expiring Wednesday, September 1. Spy is currently close to $453 so my call leg of the trade is doing well, as it is Monday August 30 today, with 2 full days left. The value of the entire straddle is $448 (not to be confused with my strike price!! it's coincidence they're so close to each other). My purchase price was $403 so I'm currently profiting for $45.

BUT! And here's the kicker. SPY could drop to $449 tomorrow and my straddle will be pretty worthless. So, the idea would be to sell it for $45 profit.

OR... I can roll it to the next expiration, but with a new strike price!! That's where I stand to make the most, I think. The perpetual straddle. In case it moves $6 or so in a day some time in the future, I will have one of my options that are deep in the money, and roll it to the current price a few days out, for a credit, and I am still in the game. Rather than just selling it and moving on. SPY has pretty solid, so I'm gonna stick with it.  Right now I could roll it to $453 on Friday, September 3 for more than $45. In fact I can double my profit to $90, and still have a play in the game for big moves in the rest of the week. Always rolling it, hopefully for credit :)

So, that's my new experiment. My initial investment was $235 and including that, I am at a current value of -$456. Which is fine. One big move and it's fully recovered, and then some. And with one big move usually comes another big move, and I'll have options either way it goes :)

(QQQ is also a good candidate for this strategy)

blog comments powered by Disqus