AMZN straddle

[semsem24 5]

Yesterday at around 3.30 I opened AMZN weekly straddle for 5.22 and sold it this morning for 8.50 at 9.32 , My initial target was 10.00 then I was afraid that the stock price will drop and the gap higher and sold at 8.5 . Have I held , I would have gotten my 10.00 target or even more .

My reasoning for the trade was that the straddle was so cheap and AMZN ATR " Average True Range "  from finviz.com is 12.71 . Based on this , I felt that the odds are in my favor .

My question to our options traders community

Did anyone do a back testing on making a trade like this mechanical and we can do it every week . I am sure not every week will be a winner but I have a good feeling that at the current VIX price and straddle price we  will end up being winner at a good number of weeks where the totality of the trade will be a winner .

I have been following a different board years ago and they were doing RIC on GOOG and AMZN on Thursday near the close and close it on Friday morning with a target of 10 % for overnight holding ..

feel free to chime in with your thoughts and / or data

[Rogers 263]

1 hour ago, semsem24 said:

Yesterday at around 3.30 I opened AMZN weekly straddle for 5.22 and sold it this morning for 8.50 at 9.32 , My initial target was 10.00 then I was afraid that the stock price will drop and the gap higher and sold at 8.5 . Have I held , I would have gotten my 10.00 target or even more .

My reasoning for the trade was that the straddle was so cheap and AMZN ATR " Average True Range "  from finviz.com is 12.71 . Based on this , I felt that the odds are in my favor .

My question to our options traders community

Did anyone do a back testing on making a trade like this mechanical and we can do it every week . I am sure not every week will be a winner but I have a good feeling that at the current VIX price and straddle price we  will end up being winner at a good number of weeks where the totality of the trade will be a winner .

I have been following a different board years ago and they were doing RIC on GOOG and AMZN on Thursday near the close and close it on Friday morning with a target of 10 % for overnight holding ..

feel free to chime in with your thoughts and / or data

So it was a 1 day trade with 550 of theta decay?   No thanks..  Great trade but you got lucky the stock moved so much...

 

[Yowster 8,047]

30 minutes ago, Scott Rogers said:

So it was a 1 day trade with 550 of theta decay?   No thanks..  Great trade but you got lucky the stock moved so much...

Agreed, high risk/high reward.  I will say that in our current ultra-low market IV environment it is much cheaper to do this type of trade compared to when IV is at more normal levels - at these times that 1-day straddle would be much more expensive and require bigger stock price moves to be profitable.

[Kim 7,513]

$5.50 on a $960 stock is only 0.5% - it does look cheap based on AMZN volatility. I will try to do some backtesting. It is definitely an interesting idea. While I don't think those prices will last for prolonged periods of time, it could be interesting to look at it while low volatility lasts.

[semsem24 5]

I agree that this is a high risk high reward that is why position size need to be very small 2 - 3 % at the most . I am trying to take the luck out of it by looking into back testing .

For example , can we say that if the straddle price compare to ATR is 0.4 (5.2 / 12.2) , we have good statistical odds ?

Also , for argument sake if I stuck with my target of 10.00 or waited till 15.30 to close the trade , I would have done better ..in that case even if I have next week an 80 % looser , I am still up on the trade.

Also , I understand that the straddle price is so cheap right now that is why this trade was done few years ago as an RIC with a 10  - 20 - % profit target .

Just food for thought , the other question , if we want to back test such an idea , is there a good way or a software that can do that ? or we have to go manually with something like on demand on TOS ?

[abandak 26]

34 minutes ago, semsem24 said:

I agree that this is a high risk high reward that is why position size need to be very small 2 - 3 % at the most . I am trying to take the luck out of it by looking into back testing .

For example , can we say that if the straddle price compare to ATR is 0.4 (5.2 / 12.2) , we have good statistical odds ?

Also , for argument sake if I stuck with my target of 10.00 or waited till 15.30 to close the trade , I would have done better ..in that case even if I have next week an 80 % looser , I am still up on the trade.

Also , I understand that the straddle price is so cheap right now that is why this trade was done few years ago as an RIC with a 10  - 20 - % profit target .

Just food for thought , the other question , if we want to back test such an idea , is there a good way or a software that can do that ? or we have to go manually with something like on demand on TOS ?

0.4 ATR is probably a slight tilt, but 0.5 ATR is the cut-off for 50% chance of being profitable based on whatever series you're averaging, right?

[krisbee 1,620]

On 5/12/2017 at 5:33 PM, Kim said:

$5.50 on a $960 stock is only 0.5% - it does look cheap based on AMZN volatility. I will try to do some backtesting. It is definitely an interesting idea. While I don't think those prices will last for prolonged periods of time, it could be interesting to look at it while low volatility lasts.

I did backtesting on this. Here are the stats for the whole 2017. Entering Thursday before close (1 time it was wednesday due to long weekend).

Explanation of the table below:

GRAYED out rows are not to be considered because either straddle price is high OR earnings week. 

GREEN Background 

Idea is to have GTC of 20% profit or 20% stop loss.

Don't have GTC on thursday. See the next day open price, change limit accordingly and close only 1 long leg to max profit if it is above 20%. 2 times the opening rates are above 20%. ( 50% and 35%)

 

 

 

 

Edited May 4, 2019 by krisbee

[semsem24 5]

Thank you so much for the data you put together @krisbee

From looking to the data , it seems to me that 20 % stop loss was helpful most of the time ..so it is a good addition .

When I looked into the winners , it seems to me that taking 20 % win was too conservative . if I understood the table correctly there was 6 winners not in gray

4 out of those 6 winners the move was higher and we could have gotten 100 % .

If the success of the trade is close to coin toss but we only loose 20 % and make some where between 50 - 100 % , we may have a winner .

It is not an easy trade and it has to be a small position . I also understand that looking at pure stats is one thing however playing the market with money on the table takes much more guts .

[semsem24 5]

Thank you all for your input

I was thinking about this trade and I decided to try it every Thursday with a very small position , I will try to make it mechanical as much as I can to take the human emotion part out of it ..I put few rules to make it mechanical

Here are the rules I will follow :

1- Open on Thursday after 3.45 if the straddle price is under 6.00 .

2- Once the straddle is open , I will put for a vertical with a 10.00 width  if I can get $ 2.00 for it " this will work rarely " about 10 % of the time " but I will try to maximize the winners"

e.g if the straddle open at 950.00, I will put a GTC order to sell 960 calls or 940.00 puts for $ 2.00.

3- Most of the move happens in the morning and the stock stabilize at 12.00 pm , so will check the trade at 12.00 pm and close it if a vertical didn't open for the best I can get ,

this also will serve as a mental stop loss if the stock didn't move much .." this is my mental 20 % stop loss "

if the trade happen to be a vertical then , I will put an order to sell the vertical for 9.7 " 10.00 wide vertical " 

4- If the trade is still open at 3.15 " only happen if it became a vertical that didn't sell for 9.7  " then I will close it for what I can get bet 3.15 and 3.30

I will try to report back how it goes

[krisbee 1,620]

On 5/16/2017 at 4:27 AM, semsem24 said:

Thank you all for your input

I was thinking about this trade and I decided to try it every Thursday with a very small position , I will try to make it mechanical as much as I can to take the human emotion part out of it ..I put few rules to make it mechanical

Here are the rules I will follow :

1- Open on Thursday after 3.45 if the straddle price is under 6.00 .

 

2- Once the straddle is open , I will put for a vertical with a 10.00 width  if I can get $ 2.00 for it " this will work rarely " about 10 % of the time " but I will try to maximize the winners"

e.g if the straddle open at 950.00, I will put a GTC order to sell 960 calls or 940.00 puts for $ 2.00.

 

3- Most of the move happens in the morning and the stock stabilize at 12.00 pm , so will check the trade at 12.00 pm and close it if a vertical didn't open for the best I can get ,

this also will serve as a mental stop loss if the stock didn't move much .." this is my mental 20 % stop loss "

if the trade happen to be a vertical then , I will put an order to sell the vertical for 9.7 " 10.00 wide vertical " 

 

4- If the trade is still open at 3.15 " only happen if it became a vertical that didn't sell for 9.7  " then I will close it for what I can get bet 3.15 and 3.30

 

I will try to report back how it goes

I'm not sure if you had done this week. it should be a winner this time.

[semsem24 5]

It would however the price was over 6.00 yesterday at 3.45 so I passed 

[krisbee 1,620]

16 minutes ago, semsem24 said:

It would however the price was over 6.00 yesterday at 3.45 so I passed 

OK. I saw overnight's straddle price for 357.5, the STO on either side almost 10$ away would have given around 1.7 which would have brought down the price in $5+. I saw the long leg was 10+ in afternoon.

[semsem24 5]

I want to update this trade , The first time I was able to open this trade since my original post was on Thursday 06/01 at 3.57 . I opened AMZN . I didn't have it in me to stick to the plan that I wrote and posted above . I felt that the 1000.00 will be a magnet on option expiration day  so I got a little nervous as amzn went higher . 

in Any case I bought the 995.0 for 6.00 , sold the 1002.5 for 2.00 and closed the whole trade for 7.4 . in a for 6.00 , out for 9.4