Straddle vs backratio

[Optrader 123]

I was wondering if someone can share his experience of trading back ratio instead of straddle.

many times our straddles get hurt due to theta and iv loss.

this could get reduced by using backratio

looking at both it seems absolute breakeven is same for both trades and cost is same to put exactly same trade

i know its important to track straddle price as it is easier.

but say for e.g you want to buy a post earnings straddle , then it is easier to hedge some iv crush with backratios.

as pre earnings trade also it makes sense ?

[Yowster 8,047]

Why don't you post an example of a backratio spread you are referring to.  They can be constructed in various was using ITM, ATM or OTM strikes so not sure what you are asking about.   Also, straddles are looking for a big move in either direction, but backratio spreads are for the most part directional - although its true you can construct them to open the trade with a small credit, the bigger gains come from big moves in the right direction.

[Optrader 123]

I dont trade them but you can take any example.

say gild.

we could have saved some iv loss or theta loss by using a backratio instead of straddle.

 

[Yowster 8,047]

@mukundaa- I wasn't asking just for a specific stock name, I was asking for trade setup - what strikes are your short and long leg?  Are they ITM, ATM, OTM?  These are all factors in the trade setup and risk/reward

Also, you indicate that a backratio and a straddle are similar trades, but they are not.   Straddle profits from big moves in either direction (and to a lesser extent can also profit from IV increase if it outpaces theta), but backratios are mainly directional bets that profit from big moves in the correct direction (you can open for a relatively small credit that you keep if stock moves in the wrong direction, but any significant gains will come from bigger moves in your correct direction).

[Optrader 123]

The trade setup is going to be selling the atm options as they have max premium and then go out to empty the credit by buying some otms

sometimes say stock gild. I was thinking thst stock was going to go up from 72 so why buy put in straddle as it is waste. Why not play only one side by paying less ?

if you see COST it is all time high at 178 and i am betting it will go down yhen why pay for call ?

if you are wrong you loose nothing which is great . What other strategy allows to play like this ?

i see some promise in this strategy and was wondering if anyone tried that in past ? And how was the experience