Name this strategy

[aaronbeach]

I need some options expertise, I suspect this strategy has a name but I don't know what it is

 

Assume a window of N trading days and an overall exposure equal to N contracts

For simplicity let's say you are trading options on SPY and have some consistent underlying price for each day (be it closing, high, low, whatever)

Each trading day you enter a new position based on  yesterdays price (x) and todays price (y)

if y > x: buy an ATM call with strike=y, sell an OTM put with strike=x, usually this will result in a debit

if y < x: buy an OTM call with strike=x, sell an ATM put with strike=y, usually this will result in a credit

if x=y: enter a synthetic long buy/sell ATM call/put

Also, close out your oldest position, sell the call buy the put

 

Questions:

a. Can this strategy be characterized in terms of a well known strategy or combination of them (e.g., calendar spreads, carry, etc..)

b. How do the credits/debits and their net relate to the exposure

c. Does this simulate returns that are akin to the SMA-N (N day simple moving average) of the underlyer (e.g., SPY)?

Edited May 25, 2018 by aaronbeach

[aaronbeach]

Thinking through the performance a little, consider a version of this which enters a position weekly and carries 4 positions (SPY)

When you credit/debit a position you will pay or receive about 1/n to 2/3*n the return (this is for SPY at current implied volatility, obviously there is probably a function that includes the greeks or just implied volatility to better express this). So for this example let's say 15%

When SPY move into a range it has not been in the last 4 weeks it would proceed at 1-15% or about 85% exposure

When SPY reverses into a range it has recently been exposure is reduced by X/N where X is the number of week/contracts in its current range - so anywhere from 25-100% less in this current example. Probably more like 25-50% commonly. So when reversing exposure would be around 50% or less. 

Fewer contracts provide shorter periods/ranges of buffering but a greater buffering effect within that range.