Closing vs. Rolling

JoeA

Member
With the VIX ~30, shorter-duration strategies seem to be en vogue. Though increased turnover has many advantages, not least of which is the fast-tracking of one's market education, a large disadvantage looms - increased commissions/fees (C/F) as a percentage of profits. The issue is compounded by any adjustments that must be made during the life of the trade. Of the two listed below, which approach to maximizing flexibility and minimizing C/F is best?

Assume spot is trading at 100.

Closing: A 90/97.5/100 broken-wing fly is entered as +2-4+2. If spot moves to 102, we might consider buying-to-close the 97.50/100 spread, leaving us with a +2-3+1 with fewer negative Deltas. This method has the nice feature of combining an adjustment with a partial-shutdown of the structure, but if spot doesn't move all that much, we wind up paying for granularity that we didn't need in the form of C/F. Additionally, our Delta adjustment is inflexible; perhaps closing the spread will give us more/less positive Deltas than we really want at that point in time.

Rolling: An 80/95/100 fly is entered as +1-2+1. Again spot goes to 102. This time we roll up one of the shorts by selling the 95/97.50 spread, leaving us with an 80/95/97.50/100 condor. This method is leaner on C/F and offers greater flexibility in terms of fine-tuning Deltas, but it does expose the trader to more skew effects (since the distances between strikes have increased).

Which approach do you prefer? What else should I consider?
 
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In GrCl do you mean selling to close?
JoeA, it is pointless to search for general answer as "it depends" on vol level, dte, dit, pl, overall portfolio structure, risk tolerance, style and whatever else you look at. Just learn pros and cons of both methods and use them whichever better suits you in any particular situation.

If you just doing poll: I don't like neither as both methods increase risk. Wouldn't use them unless very close to expiration, or much farther than 2 points away from atm (unless standard move is like 0.5).
 
Which approach do you prefer?

As Marcus was saying "it depends"
What underlying are you using ?
What DTE ? Where is the trade at the time you are thinking of making the adjustment ? Did you just place a 7DTE or 43 DTE ?
How much credit are you getting ?
Perhaps a more specific example might bring more answers than just a generic one
Doing a quick scan for stocks around 100 I got JPM at around 99 and change
Looking at your example 90/97.5/100 for 43 DTE I am showing a credit of 1.18 Assuming 2 lots for your example if JPM moves up to 102 with everything else being the same and assuming the model is correct I am showing a profit of about $50 which is about 5% profit on margin That's not bad for one days work I am not sure why you would even want to adjust at that point since the trade is going in your direction and there is no loss on the upside You may want to adjust on the downside though

On the other hand if you were thinking shorter duration 8DTE than you only get 0.13 credit so at 102 you would only get about $33 or 3.3% It's a little bit less but still not bad Of course the lower the credit the more it will eat into the profits but I still would not make any adjustments I would just close it maybe a day or 2 before expiration in order to take advantage of the butterfy effect

In any case I see no reason for rolling or closing half of the position when the stock moves in your favor
It's the loosing side you have to worry about in this case would be the downside
 
When vols are higher there's more premium to sell

True but how do you figure the vix 30 has any corelation to a stock which can have a higher or lower volatility and how do you figure the time exposure based on a certain volatility ?
 
True but how do you figure the vix 30 has any corelation to a stock which can have a higher or lower volatility and how do you figure the time exposure based on a certain volatility ?

I should've been more clear, especially since the example I used in no way implied this: I'm only trading SPX right now.
 
When vols are higher there's more premium to sell, which means you can reduce the amount of time exposed to a given trade in order to hit an average profit target.

So they're en vogue... according to you? Is this perception just based on one logical reason for trading this way or do you have data to support it?
 
So they're en vogue... according to you? Is this perception just based on one logical reason for trading this way or do you have data to support it?

I follow a few different trading communities / individuals and it seems that way to me. Is this really that important to you? You're missing the point of the thread.
 
That's all I wanted to know. It was important enough for me to ask, yes, because I disagree.

I'll step back and let you continue with the main focus of the thread.
 
Okay, that's cool. Can you elaborate? I'm okay with being wrong, and maybe I can learn something.

It's my personal belief that we can get into trouble when we assume more than we actually know. I don't know what is "en vogue" and I can almost always find people on both sides of the argument (e.g. trade long or trade short; spread or naked; long duration or short duration). I certainly don't ever know whether someone has actually profited from their trades without them providing with me a copy of tax returns, brokerage statements, and or trade confirmations. Lots of people have incentive to deceive about such things.

If I want to learn whether something works, I think my best chance is testing to put some reasonable context around it.
 
If I want to learn whether something works, I think my best chance is testing to put some reasonable context around it.

Sure, I think we can agree on this.

What I'm hearing is that it isn't so much that shorter-term strategies aren't popular these days as it is that you think it might be me seeking out these types of strategies, leading to confirmation bias. Totally possible. When you said you disagreed, I thought you might have some insights that'd support the claim that longer-term strategies are at least as compelling in the current environment.
 
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