Out on calls.  Market usually dips mid day so I'm waiting for that to exit on the hedged puts.

Also looks like the bollinger bands worked great for predicting today's gap.  Right now it looks like we won't get another pinch for a day or two, so I'm going to wait till next week to set up another straddle.  I might play pure calls/puts here and there though, we'll see.

Just thought I'd share and outline the strategy I've been using the last few weeks to profit on the market no matter what direction the market goes.  That and incase I forget because I tend to forget what I say in the middle of the week. 

This is almost a win-win strat IMO so feel free to use it yourself (and let me know how it goes ).

Options Straddle on Volatile Markets
I'm mainly buying both calls and puts to form what's called a "straddle."  Basically you can lose 100% on one side but you count on the other going >100%; the best part is you don't have to care what direction, just the magnitude of the move.  For the index, I choose either SPY or FAS, depending on where I think the focus will be (read the news); SPY is general market while FAS leans toward financials.

This is a summary of the technical analysis I go through to set up the straddle:
- Check 30-min bollinger bands for pinch to see what days will gap. (last few weeks, it's pinched mid/end day and then gapped that night).
- Buy equal positions (in dollars, not contracts) on ITM calls/puts at end of day because decay eats up a lot during sideways movement intraday.
- Sell next morning, often at about 10:30-10:45am EST.  After 11am EST, market usually dips or trades sideways until ~3pm EST.

It's worked very nicely for me so far.  Usually count on the overnight gap being big enough for one side to go >100%.  If not, the losses are pretty small also (if the market doesn't gap enough or trades flat).  But just make sure to follow the strat consistently; I've had a few times where I was tempted to go long or short mid-day only to get the options much cheaper near the end of day (because of decay). -_-

Out of puts and into a fresh set of 125x calls at SPY 124.60

This is the support I'm looking at right now.

Just noticed that all the major overnight gaps occured during bollinger pinches on the 30-min scale.  This is going to be useful for picking which days to open straddles on (today for example, no real gap in either direction).

Picked out some puts at the top of today's wedge to complete my SPY 125x straddle - going to see if the bollingers are good for predicting a strong gap for tonight.

Edit: Ugh, I'm an idiot.  I'm betting long and I hedge w/ puts mid-day before anything happens.  Sigh, SPY breaking 125 now.  -_-

Thinking the next resist here is the 126-128 we had during the brief rally above the Aug-Sept. channel.
Exited most of my earlier calls (too deep in the money now to increase that much more) and picked up a few 126 SPY calls.  Will add more at end of day so I get less options decay.

EEE looking nice here as well - reminds me of EK, FMCN, AMR - lot of bounce plays lately.

The larger play was the bounce from last Friday, but it's also trending a small upward support right now if you want to channel trade it.  Bid is increasing nicely on level 2 as well.  I would just flip for 5 cents or so.

There's our end-of-day rally.
 
I'm probably going to keep holding calls into tomorrow, hedge little with puts (which are really cheap now).

Best straddle I've set up in a while.
SPY 124 calls averaged at $1, now $1.7
SPY 124 puts averaged at $.70, now $.65

Slightly heavier on the calls side.  Of course, it required me sitting here all day and timing these orders though (usually have class -_- ).

Deviating from the current strat a bit.  Holding another straddle on SPY at 120x going into close in anticipation of the Super Committee event.  Also picked up a few calls (no puts) at 14x when FMCN was under $13; it looked too much like the EK thing to me.

Added a few 205x calls at $3.40 on AMZN at 201 as well.  AMZN's right at 200-day SMA, seems to be good support around here and should at least bounce by next week.

Added a few 205x calls at $3.40 on AMZN at 201 as well.  AMZN's right at 200-day SMA, seems to be good support around here and should at least bounce by next week.

Bah, stopped out of SPY after 123 broke.  Gotta not sell off my puts completely and break my straddle. Going to reset at end of day before close (equal put/calls) on next week's options.

Meh, got my puts on both positions at about equal price to calls - wanted to squeeze it a little cheaper but oh well.

SPY is getting tighter in the week's wedge.  Personally think we'll break to the upside of it to get that EOY rally, but we'll see.  Whichever way we break should be strong so I'll stick straddles for now.

Ok I couldn't help myself.  Added a few more calls below SPY 124 - it just looked so cheap at the bottom of the daily wedge.

Still have enough puts that if we do gap down and start selling heavily, it'll more than make up for the SPY calls.

Testing 126.5 now.  If it breaks, I'll probably drop my puts and just ride the calls.

^ The 125 calls went from $1.15 to $1.45 during the morning.  Had a limit at $1.40

Missed most of the action after 8am in class though.  Right now just watching the wedge at end of day:


My gut says we bounce upwards where the lines cross, but if you want to hold overnight, I'd go for a straddle (buy both calls/puts).  We did just break some strong support lines - expecting a lot more volatility tomorrow.

SPY calls/puts straddle from Tuesday would've netted 75% if anyone picked up on them (Asee).

SPY 125x call -> .6 to $1.60 now (+166%)
SPY 121x put -> $1.1 to $.06 now (-95%)

Yeah, going back to the outlook I had at the start of the week.  Overall bullish for Q4 and bearish for 2012.  Resistances at SPY 130 and 135 (possible turning points for when we turn bearish).

Sigh - need to stop changing my outlook based on intraday movements.

126 resistance broken on SPY.  Those 125x calls would've returned 300% if you sold today - maybe even higher if we continue up tomorrow.

Sigh

Nice set up for a straddle today.  For Asee's reference if he actually played this:
SPY 125 calls at $.60 -> Currently $.85
SPY 121 puts at $1.10 -> Currently $.8

Right now, markets just broke upwards so it's a good thing you didn't go full puts like you wanted to.