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  3. Kim

    Building a Short Strangles Portfolio

    @Stephan HallerThank you for another great article! I like the idea of non correlated instruments. In this case, my biggest concern probably is regarding IWM and TLT. Since they have a pretty strong inverse correlation, wouldn't a strong down move in IWM cause a strong up move in TLT, causing both strangles to be losers? Also, what are your live results trading this portfolio? For how long have you been trading it?
  4. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @Kim I adjusted for buying power, when I did the study. 3 contracts IWM, 1 and later in the year 2 contracts in GLD, 2 contracts in TLT, 3 contracts in XLE.
  5. Kim

    Selling Short Strangles and Straddles - Does it Work?

    Thank you @Jesse. What would happen to annual volatility and max drawdown if you increase the leverage to 2x? 3x? And what was the result for 2018? Can you confirm it was positive?
  6. Kim

    Selling Short Strangles and Straddles - Does it Work?

    $3,767 total for 2012-2017? When you say "Adjust for buying power", that means equal notional per underlying? What is the total notional?
  7. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    IWM (30 delta short strangles) is my only losing position for the year so far, but I'm close to break even.
  8. mustafaoe

    Selling Short Strangles and Straddles - Does it Work?

    It looks good for the year 2008 but just checked for the last 12 months it does not look very good just selling shorts
  9. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @Sam Chen Well, when you start out 45 - 60 DTE and close at 21 DTE, there aren't more trades possible. If have done studies from 2012 - 2017 for my books. GLD, IWM, TLT, XLE. In IWM short straddles in 2013 you would have made $746.50 per one lot. In GLD you would have lost $1,285 per one lot. In TLT you would have made $567 per one lot. In XLE you would have made $465.50 per one lot. But if you adjust every underlying for buying power reduction/notional you would have made $3,767 combined.
  10. Sam Chen

    Selling Short Strangles and Straddles - Does it Work?

    @Stephan Haller I see. I am just a bit surprised that the total number of trade is so small within a year. In case I am wrong, what is the number of trade that is taken in your backtest? I believe in the year of 2007 and 2008 this strategy beats the SPY return. I am curious to see if this is still the case when SPY has a very good return. For example, SPY has 29.6% return for the year of 2013.
  11. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @Jesse Could you also backtest at which notional you blow up?
  12. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @Sam Chen I never trade weekly options. Just regular expirations around 45 DTE.
  13. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @Kim @Jesse 2008 is finished: - Win rate 84.6% - average P/L per trade $47.31 - total profit per one lot $615 - biggest loss $959.50 per one lot But I did this study manually. I just started a trade in the first trading day of 2007 and then closed when 25% of max profit was reached or at 21 DTE. I immediately put on a new one after closing. Always 45-60 DTE. I was only using regular expiration.
  14. Sam Chen

    Selling Short Strangles and Straddles - Does it Work?

    $117 average win and $1532 total profit means only 13 trades for the whole year. We can enter this trade every week nowadays. I guess it is because of the different in expiration availability?
  15. Jesse

    Selling Short Strangles and Straddles - Does it Work?

    IWM short straddle, 2007-current. 45 DTE entry, exit at 25% of max profit or 21 DTE...whichever happens first. 1x notional exposure, excess returns (no collateral yield included). Entries every 7 days to increase sample size and minimize skewed results from good/bad luck. Stats: Annual return: 6.69% Annual volatility: 7.62% Sharpe: 0.88 Best Year: 15.93% Worst Year: -7.06% Max drawdown: -18.58% Win Rate: 71.8% Average DIT: 21 Total trades: 656 I've done plenty of other backtests for both straddles and strangles, and this is in the ballpark of what I'd have expected.
  16. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    I also have to recheck it, since results are really surprising to me. IWM was trading around 80 in 2007, so $8,000 notional.
  17. Kim

    Selling Short Strangles and Straddles - Does it Work?

    One lot meaning how much notional exposure? I must say this is a REALLY surprising result. @Jessecan you please confirm it with ORATS?
  18. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    I'm just working on a study: IWM Short Straddles, 25% of max profit or 21 DTE. 2007 and 2008. 2007 is already finished: - 92.3% win rate - $117.85 average win per trade - $1,532 profit per one lot - only one loser $59.50 loss per one lot
  19. Kim

    Selling Short Strangles and Straddles - Does it Work?

    I would like to see backtest for SPY and IWM, based on the rules in the article: Enter 45 DTE Exit on 50% of the credit or 21 DTE. Use 100% notional and 200% notional. I know that the actual rules are a bit more complex, but lets keep it simple for now.
  20. Jesse

    Selling Short Strangles and Straddles - Does it Work?

    Everything you guys are discussing can easily be backtested using ORATS wheel. Just tell me exactly what you want to see and I can easily put together a combined portfolio backtest from 2007-current. Or sign up for the free trial and do it yourself. 1. Symbols 2. Weighting in each product (can add up to more than 100% if you want to assume leverage) 3. Deltas of the short strikes 4. DTE 5. Exit DTE or profit percentage The output will show just about every performance stat you could care to know. It's extremely well done and worth the money IMO.
  21. Stephan Haller

    Building a Short Strangles Portfolio

    Lately we experienced a 7% down move in the S&P 500. image source: TOS trading platform We have also seen an explosion in the VIX. image source: TOS trading platform All in all a pretty shitty situation if you have a delta neutral short premium portfolio. So let's have a look how a portfolio consisting of 30 delta short strangles and/or atm short straddles in IWM, FXE, TLT, GLD, XLE, which was started before this wild ride in the markets happened, would have performed. Set up As shown in my books, IWM, FXE, TLT, GLD, XLE are the most uncorrelated ETFs. With these underlyings you have exposure to the Russell 2000, the Euro Currency, Bonds, Gold and the Oil Sector. Rules $100k portfolio capital allocation based on the VIX (20-25% allocation in very low VIX environment, 40-50% in a high VIX environment) equal buying power in all underlyings never go above 3x leverage in notional value 30 delta short strangles or atm straddles about 45 DTE profit target = 16 delta strangle credit at trade entry close all positions at 21 DTE if profit target is not hit before if short strike in strangles gets hit, roll untested side into a short straddle (original profit target doesn't change) if break even in a short straddle gets hit, roll untested side to the new atm strike (going inverted) if IVR in IWM goes above 50% and/or VIX makes a big up move, add aggressive short delta strangle to balance deltas Portfolio Performance As a starting date I picked July 30th 2019, probably the worst day in this expiration cycle to start this kind of portfolio. Since the VIX and IVR was pretty low at this moment, I committed only a little bit above 25% of my net liq. IWM image source: TOS trading platform FXE image source: TOS trading platform TLT image source: TOS trading platform GLD image source: TOS trading platform XLE image source: TOS trading platform Portfolio So far in dollar terms a $1,571.50 loss or 1.571% loss on the whole portfolio. Not too bad considering the IV explosion and the big moves, especially in TLT. As you can see, even in a tough market with big outside the expected moves and IV explosion, short strangles/straddles are not a recipe for disaster. The key is to trade small when IV is low and mechanically adjust your positions/deltas. Of course the expiration cycle is not over yet and we can still have more big moves and much higher implied volatility in the coming days, but you should have seen now, when you have the right set of rules and religiously stick to these rules and when you trade small enough when IV is low, you are not going to blow up your portfolio. Stephan Haller is an author, teacher, options trader and public speaker with over 20 years of experience in the financial markets. Check out his trilogy on options trading here. This article is used here with permission and originally appeared here. Related articles Selling Naked Strangles: The Math Selling Short Strangles And Straddles - Does It Work? James Cordier: Another Options Selling Firm Goes Bust How Victor Niederhoffer Blew Up - Twice
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  23. Kim

    Selling Short Strangles and Straddles - Does it Work?

    Yes, IWM would provide higher return than SPY since it is more volatile and as a result, provides higher options premiums. I assume you would not put your whole portfolio into IWM, so the question is what is the expected return for your 5 non correlated instruments portfolio? But let's leave it for the next article.
  24. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    Yes, I do believe in efficient markets. Of course in times when short straddles lose, long straddles win, but the question is, would you buy long straddles in times when premium is so rich as in 2008? Unfortunately I don't have access to 2007/08 data to backtest it. Hey, it's getting late over here in Germany. Heading to bed now.
  25. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @kim I don't think we disagree on Karen. Like I and you said, excessive leverage kills. But since I don't know what and how she was trading in her fund, there is not much to say about it. If you look at the numbers, you will see, that a short straddle in SPY with 1.46x leverage produces 11.33% if you take August 13 closing prices. The 30 delta short strangle would give you the same numbers, since when you manage the 30 delta short strangle at 50% and the short straddle at 25% you get basically the same results, as I show in my first book. The short straddle in IWM would give you 15.78% with 1.5x leverage (again August 13 closing prices). At this rate you'd double your account every 4.5 years. Which is not too bad. You even can invest the rest of your portfolio in short term treasuries (and use them as collateral) and get some extra return.
  26. Kim

    Selling Short Strangles and Straddles - Does it Work?

    Well, I guess we will let tastytrade to do their "scientific studies", and we will continue with live trading, proving those studies wrong time after time. Do you really believe in efficient markets? Just to put things in perspective: we do on average around 70 those straddles per year. Even if you did no other trades we do, and allocate 10% per trade, with 5% average return, your portfolio would be up 35% per year. Since they are such low risk, you could probably allocate even 12-15%. Yes, premium selling gives you an edge, but it's also exposes you to big moves. Personally, I don't believe that you should have only gamma negative trades in your portfolio. You mentioned "Of course they lose money during these times (2008), but so does any other strategy except trading directional and picking the right direction." - actually, those straddles would make a LOT of money during these times.
  27. Kim

    Selling Short Strangles and Straddles - Does it Work?

    Okay. I guess we will have to disagree regarding Karen, our pre earnings straddles and tastytrade studies about those straddles. Going back to your article, this is how I would summarize it: Selling SPY 16 delta strangles and ~1.15 (4 contracts) notional exposure would produce 3.64% annual return, August 13th 2019 closing prices. In the long term, the return is probably closer to 5-6%. Selling higher deltas would increase the return, but also the volatility of the portfolio. You can go to 50 deltas (straddles) and get around 9%, with the same exposure, but also much higher volatility. 30 deltas is the sweet spot, where you would probably get around 6-7%. I suspect that most traders would not be very happy with those returns, so the way to increase them is to apply leverage. The big question is: how much? I believe that you can go as high as 3x, I think it's way too high. But even with 1.5x, and portfolio diversified beyond one underlying, it seems like a solid strategy.
  28. Stephan Haller

    Selling Short Strangles and Straddles - Does it Work?

    @kim if you want to do a scientific study, you have to pick a wide variety of stocks. In efficient markets, there is no right stock and no right timing. If you believe markets are random, you have to do it this way. Otherwise it would be cherry picking. Of course you can go back and pick the stocks which worked in the past, but it doesn't mean, that it'll work in the future. Premium selling gives you an edge since fear in general is overpriced. I don't doubt that you had success with this strategy in the past. If it works for you, stick to it. Did you write Tom or Tony? Usually they respond to every email. Tony even told you to call into the show. Would be a great discussion...
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