Earning's Straddle, Part 3/4: Legging out of Straddle.

30 апр. 2021 г.

Whether you "put on" the straddle or "leg in" to it, all straddles are legged out of.

In this case we offloaded the puts we purchased 2 days ago for a loss, and are now holding the calls in an attempt to let our directionally correct side appreciate.

--- I have an issue with this strategy ---

The idea is that we are taking advantage of the delta valuation of options. Because options are loaded with time value, and we are trying to capture an abrupt move and take advantage of the ensuing valuative chaos. We are supposed to see more increase in value on our winning side vs decrease in value on our losing side. In this case the opposite occurred. The puts (our losing side) saw a massive change in value going from around -800 to -5000. This is the loss we swallow at the open. The calls (our supposed winning side) went from around -300 to +1,400. This is the exact opposite of what we were looking for. You can see how this could be profitable if the amounts were flipped, but it's very possible the option valuations have evolved to defeat this strategy, leaving the player (me) feeling like I'm working from dusty information.

---End complaint----

In this case the gap and run mentality is successful. The calls are currently appreciation, however, this is a daily strategy, not an hourly one, so what appears to be the saving grace of the strategy, could just as well be a mirage.

Obviously, I'm not doing anything so impulsive like exiting the calls now. There is no sense in thinking I'm smarter than the strategy. That's a really self defeating way to go about things. But, for now I'm holding the calls, and I will absolutely be trying this again, and soon, to see if the values can be turned in our favor somehow.



-- The final part 4 which will be a recap of the whole thing once the final leg is taken off.