Cannabis Straddle

[Crazy ayzo 7]

I had some success today on a one-day trade straddle on CGC.  10.8% profit.... feel free to check my math.  I'm new to calculating option margins.  

[cuegis 683]

3 hours ago, Crazy ayzo said:

I had some success today on a one-day trade straddle on CGC.  10.8% profit.... feel free to check my math.  I'm new to calculating option margins.  

Great work but,I was just looking at a bunch of the straddles and , other than the 3 day expirations, they are not too liquid.

The expiry you chose had decent liquidity plus, it is really going to work, or not, because you have all of the gamma , and liquidity on your side.

 

If you tried this with a 2 + week expiry, the same amount of movement probably would not have created a profit because there isn't enough gamma

[Crazy ayzo 7]

4 minutes ago, cuegis said:

Great work but,I was just looking at a bunch of the straddles and , other than the 3 day expirations, they are not too liquid.

The expiry you chose had decent liquidity plus, it is really going to work, or not, because you have all of the gamma , and liquidity on your side.

 

If you tried this with a 2 + week expiry, the same amount of movement probably would not have created a profit because there isn't enough gamma

@cuegis, I greatly appreciate your feedback.  Despite having been a voracious reader of the SteadyOptions content for the past 6 weeks your feedback is mostly greek to me!  Would you mind elaborating on...

* How do you determine the liquidity level?  Open interest?  Bid/ask spreads?  Other?  To a beginner, these felt liquid in the fill process.  The prices jump around so much within a few minutes that I had no problem getting a fill for the straddle by selecting mid bid.

* The gamma totally escapes me... although I think that's what was happening on my longer term BABA trade.  I understand that a longer expiry is more expensive than a shorter term.  Here's my beginner reasoning; I thought that was because it has more Theta (time?) built into the price.  Therefore the same amount of Delta in the stock price would have a smaller % impact to the option prices.  Would you mind elaborating on the gamma? and/or correcting my reasoning?

* I'm trying a variety of trades, so far most of them have gone well but I'm also trying to learn where I was just plain lucky vs. reasonable calculated risk.  In my enthusiasm for winning my first cannabis trade, I immediately opened a second.  I would have closed this one out today as well for a 16.5% return but time got away from me.  Hopefully the price holds tomorrow.

Ps.  The first was 100% beginners luck.  I wasn't paying close enough attention and I accidentally bought Nov 16, thinking I was buying the 23rd.  I would have immediately sold them for a slight loss but I had to run out for a doctors appointment!

Thanks in advance.

[Yowster 7,996]

@Crazy ayzo There are 2 main factors that figure into how quickly gamma grows:

1. The IV of the options, the higher the IV the slower gamma grows.   This is why higher-IV stocks are not the best hedged straddle candidates because the straddle doesn't have a significant gains when the stock moves beyond your short strikes.
2. The time to expiration.  The closer you are to expiration the higher the gamma (but also much higher negative theta).

 

Cannabis stocks typically trade at very high IV - CGC around 90% and TLRY around 120%.   This means gamma grows quite slowly as the stock price moves, which is obviously not the best scenario for straddles.   In your case, however, by using options expiring in less than 3 days the gamma grew quicker because of the very short time to expiration so you got a decent gain when the stock price dropped (the negative here is that if you didn't get the stock price movement then negative theta would quickly lower the price of your straddle).   If you use a straddle on a very high IV stock with a longer time to expiration, realize that gamma gains will grow slowly and the trade probably stands to gain more due to further IV increase than due to stock price movement - unless that stock price movement is quite large.

[akito 184]

19 hours ago, Crazy ayzo said:

I had some success today on a one-day trade straddle on CGC.  10.8% profit.... feel free to check my math.  I'm new to calculating option margins.  

Just a heads up. If you would like others to double check your math, you need to post your opening price as well. All I see here is your closing price.

[Crazy ayzo 7]

2 minutes ago, akito said:

Just a heads up. If you would like others to double check your math, you need to post your opening price as well. All I see here is your closing price.

@akito

I should label the columns, it's all there.  20 is the number of contracts.  Second box is the opening date and opening prices.  Third box is the closing date and closing prices.  Last column is the closing total gain/loss.

[Crazy ayzo 7]

Closed my second cannabis CGC straddle.  12% profit.  1 day trade.  Opened a third.  Sorry, but I couldn't figure out column labels... $1.57 is the opening price price for the calls, 1.33 for the puts, $2.55 closing for the calls, $.70 for the puts.  Total of 20 contracts.

Opened a third trade for Nov 23rd

 

[cuegis 683]

7 minutes ago, Crazy ayzo said:

Closed my second cannabis CGC straddle.  12% profit.  1 day trade.  Opened a third.  Sorry, but I couldn't figure out column labels... $1.57 is the opening price price for the calls, 1.33 for the puts, $2.55 closing for the calls, $.70 for the puts.  Total of 20 contracts.

Opened a third trade for Nov 23rd

 

I'm looking at the Nov 23 ATM ($36) straddle right now, and the bid ask is $3.25/$3.60 which seems illiquid to me.

But, if you could easily bid $3.30 and get filled, that would be ok.

With a spread (bid/ask) this wide, I wouldn't feel comfortable paying the mid point as the trade already has enough risk built into it to add possibly .25 cents getting in, and maybe the same getting out. And that's assuming you can even easily get filled at the mid point.

Win or lose, I feel like you are giving up way too much before the trade even plays itself out.

 

But, I haven't done this trade so I'm just viewing it from the sidelines.

If you have been profiting then that's great.

It seems to me that the best chances are with using options that have 2-5 days left on them, because they seem to be the most liquid, and have the most gamma,....like when you did the the Nov 16 options.

Also, you would need to be very strict about only holding for 1-2 days at most, maybe even only a 1 day shot, which is why it is SO important to not give up any additional money in the slippage. 

 

 

[CharLter 0]

The profit is higher now, or am I wrong? First trade and I get 15 % profit