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[Admin note: I posted the above question for others to beneift from my response. I teft the user’s name anonymous. Please post questions to forum rather than email.]

Response to
1) Not necessarily. Each situation depends on prices of options at different strikes. However, longer dated long positions will almost always be “closer to market price” than shorted shorter term options.

2) “So how much further out of the money should the short options be than the long options?” Again, there is not set rule. It depends on the price of those options. You want to sell as high premium as you can while paying as little as you can for bought protective inner strikes.
You cannot easily create “hard” rules. Graph it out or caculate it manually with different combinbations.

3) Nope. No need. The bought options offer you the protection you need. Most options are not called until the day of the expiration. The exception is if before the earnings date there ia a revelation of critical information, which reduces uncertainty. This simply means that the short options will have already lost their inflated value and are unlikely to drop much more, although they will lose value to time effects. I explain that in the original article.

4) No I do not consider price trend. This could reverse anyways based on earnings surprise/disappointment.

5) volume and open interest will affect bid/ask spreads. So focus on the b/a spread and you should be fine. It is more important for the long options than the short ones, as you’ll want to exit those positions after your shorter term strikes expire.

6) Don’t have a good suggestion for free iv historic charts. I use my Interactive Brokers accounts, which offer great charts, but you’ll need to open an account with them, which is free. I think there’s a 1k minimum account size. Advantage then is you can use virtual money to place trades, which is the safest way to get your toes in the water.

Very shortly I’ll start posting these kinds of plays on Jolts Market and you can follow along if you wish. I’ll probably charge around $10 per Jolts Recipe, at first.

[admin]

Hi sdadeskyN

JoltMakers must be approved by our site administrators. The reviewal process takes about 24 hours, and involves verification of biographical
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There is no cost for publishing the Jolts themselves. However a portion of the fees that you set are owed by TradeJolt, as per our Terms and Conditions. The balance , 75 percent at the time of this posting will be paid to you monthly. Your earnings will accrue in your account in a record you will be able to view. Payments will be submitted at the end of each month by ACH to the bank account you specify.

Eventually, we intend to set up a payment service using Bitcoin’s Lightnlng network. This will be optional for both buyers (JoltTakers) and sellers (JoltMakers). There will be incentives for both to participate At that time the payments made will be instant to the JoltMakers.

[admin]

Hi Maximus,

Sorry for the long delay in responding. Been extremely busy preparing the back end of this web site and the new “Jolts” Market to be launched in early August. Yes I’m still actively trading this strategy. I’ll be publishing the returns of the first year shortly. These yielded approximately 17 percent. We’ve since made a number of changes, so that the performance improved significanltly in the latter months.

This will be the subject of a longer posting later in order to provide some meat to these data.

Yes a 30 delta strategy should serve you well. I think it can be improved upon, but it’s a good easy and relatively safe way to go. I wish you the best. Keep your eye on this site for some interesting new developments very soon.

Best,
Serge

[admin]

Hi Aldo,
Yes I think your concern may be well founded. Normally, the milk-the-cow should adapt well even to such events – on average. But you could end up losing money in the specific week in which that listing happens. If you knew in which week or month it was going to occur (do we know that?) you could either a) only to sell puts in that week, no calls or b) sell the call at a much higher strike away from the current price.

[admin]

I’ll do my best to answer your questions. I don’t have all the answers. This is a strategy I have worked out for myself, rather than learning from a theory or a mentor, so every day brings new insights.

I actually would prefer to answer via the forum, in the future, since this can also benefit other people who have similar questions.

Addressing your numbered points:

1) You can deploy this on smaller accounts. You sometimes need to trade every day, in order to optimize results by maintaining the fulcrum of your straddles (or strangles) centered on the current market price. That should not trigger buying and selling of the same option on the same day. The only problem emerges if the stock moves a lot intraday, causing you to want to close a sold position to establish a new one. Only way around that is to sell a new set of calls and puts (essentially doubling up) without buying back the original ones, then wait til next day to close original ones. However, that can bring up margin problems, potentially. .

Each situation is unique. But one approach might be to buy a week longer straddle at your existing (misaligned) strike prices, to achieve a kind of delta neutralization and minimize margin requirements.(week + 1) . Then go ahead and sell your new weekly straddle or strangle. You’ll close the week+1 the next day, when it does not impact your day trade count.

I took a quick look at XSP. I find the bid-ask spreads too wide. You’d suffer a lot of slippage whenever you roll the options.

2) Yeah GE should work fine. When picking stocks (or ETF’S) you want to have 1) low spreads on bid/ask 2) high ratio of weekly / leaps 3) many option time frames to choose from (I usually stay away from stocks with no weeklies).

As a strangle GE is paying you around $0.50 , which you can hedge long term at the same strike for about $3.69. 52 x 0.50 = $26.00 vs $3.69

And you are correct : It’s best if your long term LEAPS are at low volatility when you put this on. But if you pay attention to the ratio, and it is ample enough, you’ll be fine.

3) ” And does the width of the short and long strangles have to match?” I don’t think so. The width of the long term straddle has more to do with your comfort about the stock.
Let’s say you decide to do this on NIO , the Chinese version of TSLA. A high flying stock, but that could go to zero overnight, potentially. (I don’t trust Chinese regulators and Chinese
compliance, so a scandal can come out of nowhere). I would probably want to hold the PUT side of the LEAP closer to the market price.

4) Is selling strangles at say , delta 30, better than straddles? I’ve been trying to answer this for a while. Reading up as much as I can on any real backtesting of this to see what that reveals.
I’ve tried both, and made money with both. What I suspect – but this is not proven – is that selling straddles causes a lot more trading (and therefore friction) but ultimately brings in more revenue.

I suspect that the answer may vary based on the following:
When picking stocks, what I try to do is look at a weekly Average True Range. Then I look at the premium generated from the weeklies. If I can find that historically, even better (though that can be more difficult). I want to make sure the averages are in my favor. The straddle has to generate a lot more than the weekly ATR. If that’s not the case, then I look at what delta values are needed to sell at the outer limits of that ATR. If doing that still produces an attractive return, then that would probably be the better way to go. Make sense?

I wish you the best in your investments.

Serge

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