CMLviz vs. ONE

[drcruz 116]

Hi All,

I'm starting to put together a plan on trying to take ownership and learn the Hedged Straddle strategy. Would it be better to get a subscription to CMLviz -or- ONE?

I've seen only the first video of CMLviz (that was tweeted recently) but not the second newest video - I like the what I saw w/ the Long Call backtesting

I need to watch the ONE demo video

Thanks for your help.

Daniel

[Yowster 8,047]

On 1/19/2018 at 9:18 AM, drcruz said:

Hi All,

I'm starting to put together a plan on trying to take ownership and learn the Hedged Straddle strategy. Would it be better to get a subscription to CMLviz -or- ONE?

I've seen only the first video of CMLviz (that was tweeted recently) but not the second newest video - I like the what I saw w/ the Long Call backtesting

I need to watch the ONE demo video

Thanks for your help.

Daniel

@drcruzTo really get to know the ins and outs of the hedged straddle trade, neither of these is that important IMO.   What is important is...

• Straddle RV charts (volatilityHQ or artoftrading).  Seeing the standard rate of RV decline to determine (in the absence of gamma) if short strangle sales will cover the typical RV decline.
• Standard IV charts (ivolatility.com is one place, but you can get these many places).  To classify a stock as low, medium or high IV.   The lower the IV, the higher long to short ratio you can use (but never above 2:1).
• Past earnings history of implied move and post-earnings move (optionslam, marketchameleon).   See RV levels on earnings day for prior cycles, pay attention to the previous cycles as large moves beyond the implied (or minimal movement) can set an expectation for the current cycle.

All hedged straddles can make money if they stock price moves, but with many stocks the short strangles will not compensate for RV decline if you don't get that stock price move.  So, you try to pick candidates where you don't NEED the stock price movement to avoid losses.

Edited January 21, 2018 by Yowster

[drcruz 116]

Whoa Awesome - Thanks @Yowster I'm adding this to my notes NOW

And this answers my question of setting up the RV charts  

Edited January 19, 2018 by drcruz

[Djtux 543]

4 minutes ago, Yowster said:

@drcruzTo really get to know the ins and outs of the hedged straddle trade, neither of these is that important IMO.   What is important is...

• Straddle RV charts (volatilityHQ or artoftrading).  Seeing the standard rate of RV decline to determine (in the absence of gamma) if short strangle sales will cover the typical RV decline.
• Standard IV charts (ivolatility.com is one place, but you can get these many places).  To classify a stock as low, medium or high IV.   The lower the IV, the higher long to short ratio you can use (but never above 2:1).
• Past earnings history of implied move and post-earnings move (optionslam, marketchameleon).   See RV levels on earnings day for prior cycles, pay attention to the previous cycles as large moves beyond the implied (of minimal movement) can set an expectation for the current cycle.

All hedged straddles can make money if they stock price moves, but with many stocks the short strangles will not compensate for RV decline if you don't get that stock price move.  So, you try to pick candidates where you don't NEED the stock price movement to avoid losses.

Thanks for the recommendation.

I would like to point that i implemented point 2 and point 3 on volatilityhq.com as well, not sure if you saw that, or if it needs to improvements, i would be happy to see what could be implemented (along with all the other improvements you already suggested).

[Yowster 8,047]

29 minutes ago, Djtux said:

Thanks for the recommendation.

I would like to point that i implemented point 2 and point 3 on volatilityhq.com as well, not sure if you saw that, or if it needs to improvements, i would be happy to see what could be implemented (along with all the other improvements you already suggested).

@DjtuxYes, should have noted that IV charts and earnings history was also available on volatilityHQ.     One suggestion for the earnings history table - include a graph (bar chart) that shows implied move and post-earnings move.  All the data is there, but including a graph will make the data much easier to quickly interpret and see trends over time.

[Djtux 543]

Just now, Yowster said:

One suggestion for the earnings history table - include a graph (bar chart) that shows implied move and post-earnings move.  All the data is there, but including a graph will make the data much easier to quickly interpret and see trends over time.

Ah yes you are right, i thought that the chart you posted the other day was way easier to analyze than the raw numbers.

[drcruz 116]

45 minutes ago, Djtux said:

Past earnings history of implied move and post-earnings move (optionslam, marketchameleon).   See RV levels on earnings day for prior cycles, pay attention to the previous cycles as large moves beyond the implied (of minimal movement) can set an expectation for the current cycle.

@Yowster Everything makes sense except this line. I get buying below the average RV (improved probabilities) and the lower the initial IV the better (less capital usage). 

If I have a large RV move on earnings day, is this saying that I may have had a large RV "prior" to earnings day which may have historically been attributed to a large increase in straddle price (be it from IV move and/or stock move)?

RV = straddle / stock price

[Yowster 8,047]

13 minutes ago, drcruz said:

@Yowster Everything makes sense except this line. I get buying below the average RV (improved probabilities) and the lower the initial IV the better (less capital usage). 

If I have a large RV move on earnings day, is this saying that I may have had a large RV "prior" to earnings day which may have historically been attributed to a large increase in straddle price (be it from IV move and/or stock move)?

RV = straddle / stock price

@drcruzWhat I meant by that statement is.... When looking at past earnings history (RV and post-earnings stock move), many stocks have their earnings day RV (right before earnings announcement) always be at the same level or higher than the prior cycle when that prior cycle was a post-earnings stock price move beyond the implied.  So, looking at the average is important, but when you see that prior cycle as a move well beyond the implied, more often than not that sets a baseline for the current cycle RV.

 

Also, lower IV does not mean less capital usage.  Lower IV means gamma gains will accrue quicker on stock price movement.

Edited January 19, 2018 by Yowster

[drcruz 116]

Okay, In general the previous cycle will have more weight as predictor of the current cycle move IF the previous cycle's stock move was bigger than the expected move.

[Yowster 8,047]

17 minutes ago, drcruz said:

Okay, In general the previous cycle will have more weight as predictor of the current cycle move IF the previous cycle's stock move was bigger than the expected move.

Yes, not for all stocks but for many of them.

[drcruz 116]

@Yowster LAST QUESTION: Any rules of thumb for the magnitude IV spike / movement pre-earnings?

Thanks SO much for the help

[Yowster 8,047]

1 minute ago, drcruz said:

@Yowster LAST QUESTION: Any rules of thumb for the magnitude IV spike / movement pre-earnings?

Thanks SO much for the help

@drcruzThe magnitude of the IV spike will be reflected in the RV chart - as the RV takes into account both IV rise and theta decline.   A stock with a bigger IV rise into earnings will have a flatter slope of decline on the RV line, whereas a stock with a smaller IV rise will have a steeper slope of decline on the RV line.   The bigger the IV rise, the more it offsets negative theta.

[drcruz 116]

AWESOME, AWESOME, AWESOME - THANKS!!!

I TOTALLY get this  

Edited January 19, 2018 by drcruz

[Spread 20]

On 1/19/2018 at 3:51 PM, Yowster said:

@drcruzTo really get to know the ins and outs of the hedged straddle trade, neither of these is that important IMO.   What is important is...

• Straddle RV charts (volatilityHQ or artoftrading).  Seeing the standard rate of RV decline to determine (in the absence of gamma) if short strangle sales will cover the typical RV decline.
• Standard IV charts (ivolatility.com is one place, but you can get these many places).  To classify a stock as low, medium or high IV.   The lower the IV, the higher long to short ratio you can use (but never above 2:1).
• Past earnings history of implied move and post-earnings move (optionslam, marketchameleon).   See RV levels on earnings day for prior cycles, pay attention to the previous cycles as large moves beyond the implied (of minimal movement) can set an expectation for the current cycle.

All hedged straddles can make money if they stock price moves, but with many stocks the short strangles will not compensate for RV decline if you don't get that stock price move.  So, you try to pick candidates where you don't NEED the stock price movement to avoid losses.

@Yowster Thanks for explaining this. Very helpful , could you please elaborate a bit on bullet two. What is low, mid , high IV in respect to the long/short ratio ?

Edited January 21, 2018 by Hielke

[Yowster 8,047]

12 minutes ago, Hielke said:

@Yowster Thanks explaining thiis. Very helpful , could you please elaborate a bit on bullet two. What is low, mid , high IV in respect to the long/short ratio ?

@HielkeIn a general sense, I categorize as follows:

• Low IV stocks are non-earnings IV in the low to mid teens rising to the low 20%'s during earnings.
• Mid IV stocks are non-earnings IV around the high tees to mid 20%'s, rising the upper 20%'s or low 30% range during earnings.
• High IV is above this level.

This is important because the higher the IV the slower the gamma gains will grow as the stock price moves.   So, with a lower IV stock you can get away with 2:1 ratio (if you have decent distance between short and long strikes) because the long straddle gamma gains will be somewhat close to short strangle gamma losses.   A mid to high IV stock will have gamma gains grow much slower for the long straddle, much slower than gamma losses on the short strangle (due to its much lower IV and closer to expiration) so with these you want to use a low of a ratio as possible and never 2:1.

[Spread 20]

So may I summarize it like this ?

[Yowster 8,047]

19 minutes ago, Hielke said:

So may I summarize it like this ?

@HielkeIn general, yes.... maybe 18% as the threshold between low and medium.   However, even for low IV use 2:1 only if you have to.  Try to use something lower if you can, as many times you can.