Smiling Straddle Strategy Refinements #1

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Presentation transcript:

Smiling Straddle Strategy Refinements #1 By Ken Hodor 12/12/12

Recap on XSProfits.com Previous Smiling Straddle Presentation on 5/19/12

Overview Which Short Straddle Strike to pick? Compare returns vs other strategies Compare various expiration dates

SPY Straddle Analyze Tab

Which Strike to pick? Let’s explore the Jan 2013 strikes from 6/1 till present $140 $142 $145 $148 $150

Jan ‘13 140 Strike

Jan ‘13 142 Strike

Jan ‘13 145 Strike

Jan ‘13 148 Strike

Jan ‘13 150 Strike

145 Strike 140 Strike 135 Strike

Premium Various Strikes

Various Strikes vs. Time

VIX

Mike’s analysis

Composite Straddle P&L

WOW !

Incremental (Straddle Difference/Days Difference) WOW !

What about AAPL? Current Price 528

Observations SPY strikes on $5 boundaries higher liquidity Selling practically any straddle makes money Implied Volatility moves price dramatically So interim P&L shifts However the end P&L does not change Longer-term Implied Volatility less dynamic The VIX has been dropping since June

Conclusion As price moves, layer new straddles to take advantage of volatility shifts Ladder straddles—much like CDs Put in place purchase puts or calls (weekly or monthly) to deal with sudden price shifts. The “Smile” protection part of this strategy.