A few weeks ago, we introduced a new strategy to our members. The double diagonal spread is a well-known strategy, but we trade it with some tweaks. The double diagonal strategy is part of the SteadyOptions service, along with straddles, strangles, calendars, etc.
One of our members said, “We understand that the risk is low in the sense that we can stay open for a long time without making significant losses, but I feel like I’m playing so as not to lose.. ”
Below is a response from contributor @Yowster who introduced this strategy.
Well… I’ll briefly explain why I like them (and I have many more trades in private trades in addition to official trades, and I track even more trades).
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These are very low risk, and of all the trades I have made or tracked, only one (DE personal trade) consistently fell more than 10% if it ended before T-0. Yes, it was possible in the end. is to close it with a small profit. I have experienced make gains of 15% or more many times (NVDA, SQ, and PANW fall into this category with recent trades that closed within the past few days).
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Of the transactions I have made since January (about 25 of them), approximately 75% of them are winning trades, and the average profit between winners and losers is about 5%. (And there were some big winners like BA and MRNA, but I just tracked them and didn’t follow them). Compare the results to straddle trading as the holding period may be longer but has similar profit objectives. With a win rate of 75% and an average profit of ~5%, these DD returns are very good when compared to the historical straddle results found here.
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One of the things we have often heard from many of our members over the years is that short-term straddle trading is difficult to manage if you can’t constantly monitor the market. DDs do not fall into this category because they can be open for long periods of time. You can easily close GTC orders with a profit target and don’t have to worry about avoiding big losses when RV suddenly goes down. A very good deal for those who cannot always observe the market.
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Regarding the comment about “playing without losing.” Managing downside risk as much as possible is one of my main goals in SO trading, as a high percentage of losses can have a significant negative impact on portfolio performance. I look at DD simply as: Approximately 75% of trades can be profitable (there are also some small profits, but a significant number exceed 10%, and some even reach 20%). However, almost all losses are limited to less than 10% (for most trades). (Less than 5% losers), this calculation works out very well in the long run.
There are currently 4 DDs open as official trades, and this is the one you are most likely to see at any given time. That leaves enough slots for other transaction types. Because members have different risk tolerances, not all trading types we use are suitable for all members. However, for those who cannot constantly monitor the market and for some trades that require a higher capital allocation due to lower downside risk, DD may be suitable for this category.
One of our members said:
”Regarding the comment about “playing without losing.” Managing downside risk as much as possible is one of my main goals in SO trading, as a high percentage of losses can have a significant negative impact on portfolio performance. I look at DD simply as: Approximately 75% of trades can be profitable (there are also some small profits, but a significant number exceed 10%, and some even reach 20%). However, almost all losses are limited to less than 10% (for most trades). (Less than 5% losers), this calculation works out very well in the long run.
Many options forums and traders report win percentages, or total percentages over several years. However, in the long run, a high-risk/high-reward strategy is unlikely to occur, but will result in a significantly smaller portfolio. The cost of additional options is well worth the reduced risk. Just look at their historic performance. This was one of those trades that performed better over time.
Well, thank you, Mr. Yostar. Also, straddles/stranding based on dollar needs is less desirable to me, so some trades are in large enough stocks that larger trades can exceed the recommended allocation without significantly impacting the float. I also like that. I completely respect that this strategy is for a 100,000 portfolio. I might trade more occasionally, but I think that’s a discussion for another topic. ”
My 2 cents:
To put things into perspective, we have closed 9 DDs so far with an average return of 5.1% and an average holding period of 9 days. He was the only one who lost, and both times he was down 2-3%, and on none of the trades was he always down more than 5%. Even if the stock does not move, losses will be minimized.
If some of you think that 5% on options trading is not a good return, I recommend reading “Is 5% on options trading a good return?” Yes, some options experts say you should aim for at least 100% profit on each options trade. Otherwise, it’s not worth the risk. What they don’t tell you is what risks you’ll be taking. Therefore, on a risk-adjusted basis, these results are hardly true. It’s very easy to set up and the duration is longer than a straddle, giving members more time to enter. Closing can be done in his GTC order and members often get better results. Just check out the previous DD discussion topics. The impact of fees is negligible. In today’s environment, many brokers have zero commissions, and even for those who pay 0.30-0.50 per contract (which is high by today’s standards), the commission impact is less than 0.5% per trade .
As for the statement that “I was playing not to lose,” he was guilty as per the indictment. Limiting losses is his main goal with SteadyOptions. If you look at our track record, over the past 12 years he has been able to generate triple-digit profits with very low drawdowns.
Kudos to @Yowster for always coming up with new variations on well-known strategies in all market environments.
Another consideration is trade allocation.
Let’s say you’re willing to risk 2% of your account on each trade.
If you know that your maximum risk is unlikely to exceed 10-15%, you can easily allocate 10-12% per trade. However, if the risk is 100%, the allocation should not exceed 2% per trade. Therefore, high-risk, high-reward trades do not necessarily result in better overall performance, but they do carry much higher risk.
Yes, we are playing not to lose. Keeping your losses low is one of the key factors in trading.
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