Since I'm still on a learning curve here, I decided to enter the order in my paper trading account. Does the following look correct? Did I correctly input this according to the following instruction? Is the price right? IB told me that the price would vary depending on the exchange that filled it. Thanks, Keith :^)
@kmiklas, uhm... kinda... but no, not right. When you trade a strangle... trade the OTM's. So 114 put and 132 call. Payoff is exactly the same as when you trade the ITM, but the price is way better since normally the OTM is priced with a tighter bid/ask spread. And although you are on the right track by entering it as a strategy/combo trade... I would trade the straddle separately from the strangle. They won't move a lot in price, since the delta's are low... You have sold the ITM strangle at 17.98 while at expiration it will have a value of at least 18 dollars.... so that was a bad trade. The fair value of that strangle will be intrinsic (18) plus premium of the OTM strangle... so assuming that OTM strangle was about $1, your ITM strangle should have traded around 19... which is also the sum of the prices in the 'LAST' column. Also, if you are going to trade anything as a combo, check the prices of individual legs first to check whether they are correctly priced. I think you can change the traded price in IB... just use those of that column. PS. I thought it was today so I was excited to see what had happened... and I'm still too late to trade anything since I'm in Australia and only start after US close... bugger...
Lol, thanks for your patience. I'm working late tonight studying all this. You can always trade out of hours!
No out of hours in options my friend... unfortunately... Just a quick reflection on why I would trade this way. The long straddle vs short strangle is to gain from a move with the straddle and gain from drop in IV when it reaches the strangle. The front month vols will collapse after the earnings to under the back months... so definately below 19... likely below 16 even. And the fact trading is less active around Christmas/New Years with less days to trade, the month most affected by this will trade even lower.. probably at say a 20% discount... so maybe even 13 or 14 IV. Biggest risk is no move at all... which means the straddle will be around $5 after the Jan-20 IV drops to say 17. But that Jan-06 strangle will be almost worthless, so the loss at that point could be 0.60 A very large move to say 104 means straddle = 20 and strangle = 10. So a profit of about $5.. move to 144 means straddle = 20 strangle = 12, profit $8 Small move to 114: straddle = 10, strangle about 1.50... also gain... The safest bet on earning IMO is long a straddle with a short strangle... PS. So basically, I'm saying I'm an idiot for not doing this trade ... but thanks for the info @kmiklas
I respectfully disagree. If anyone is going to claim the title of idiot around here, it's going to be me. Let's not forget that I crossed the orders, and traded the ITM strangle. I was wondering why the fee was so high on that!
I assume in the next 2 days that the Jan-06 vol will drop more... isn't quite where I thought it would end... So at the moment, 114 p = 0.50 132 c = 0 124 std Jan-20 = 6.70/6.80... so the value of this thing (if traded correctly @kmiklas ) is about 6.35. Bought for what.. 5.50 or so? That 114 put will rapidly lose value. And you can possibly buy some stock on the straddle as a gamma play since you'd be delta short....