User7x2f wrote a tutorial on how to trade options:Straddles The almighty straddle play. If you're a total beginner to options start here. You cannot trade options well without first understanding how to trade the straddle. To give you an idea of how important it is, traders often ask each other "what's the straddle?" to get an instant idea of what's going on in terms of volatility through that one price alone. Imagine you own a straddle that's worth $5 and expires at the end of today. That means if the stock moves more than $5 in one direction you win. Real fucking simple. So if you think the stock will move more than $5 today, you think vol is cheap, and if you think it will move less than $5 you think vol is expensive. Most of you call vol IV on this sub, idk why, everyone here calls it vol so that's what I'm gonna call it. Here's the interesting part. Not many of you seem to know what gamma is or how to trade it, but essentially long vol = long gamma = you get longer deltas as the stock ticks up and shorter as it ticks down. Accelerating returns. Real good stuff. So let's say we move $5 up on that $5 straddle we are long. The -50 delta put is now, let's say, -5d and our 50d call is now 95d. We went from flat to long 90d. Assuming a 100x multiplier on the contract that means our position now holds the risk (and benefit) of being long 90 stock. This is where you want to hedge that risk by selling stock. Don't sell out the straddle for a profit. Sell the stock and hedge back to flat delta to lock in your pnl. If the future keeps ticking up your short stock position is covered by the now-ITM call. But if the future ticks back down by, say, $5 and we land on the straddle, what happens? The pnl from the straddle goes back to 0, and both options are now 50d so the straddle has 0 delta too. But the short stock position makes $450, so we buy it back for the clean scalp and we still own the straddle. So if the stock moves again we get to rinse and repeat. Fucking VALUE BABY. Calendars Now that we're rock hard, let's get freakier. Throw in another straddle that expires next week and we're shorting this one. It's going to cost more than the $5 one expiring today so we're receiving cash for this play, or long theta. Daily expiry straddle has a fuck tonne more gamma than next weekly straddle so we can still scalp deltas. That's some real good shit right there. Now we about to hit some meth and and things are going to get wild. I'm going to lose some of you here but that's okay, your non-retarded brothers-in-arms will march on. The term structure. On that picture replace the word 'price' with 'volatility'. For structured indexes in a low vol environment we expect it in backwardation. That means on our calendar from before (called a straddle swap) we bought low vol and sold higher vol. I don't know how you fucksacks got it backwards but if you buy low, sell high then good things tend to happen. In the world of options buying low vol and selling high vol leads to efficient positions where the amount of gamma you get for the amount of theta you pay is really great. As your front straddle approaches expiry, you can roll your position by buying back next week's straddle to long and then selling the week behind's straddle. Here's where you can make extra cash by having a good feel for whether the straddle is expensive or not. If it looks a little pricey, ride the short straddle a little while before rolling the position. Moar theta. Recently we've started seeing the term structure in contango, so short-dated volatility is more expensive than longer-dated volatility (I'm talking forward volatility here). Structurally this represents a significant demand for gamma. We tend to see this term structure when there's some kind of event-driven macro-level uncertainty going on. You know how the higher the vol of an option the less gamma it has? Well volatility is back and in these higher vol environments you get less gamma for the theta you pay. Stop fucking buying high. It's all relative. Option premiums are more expensive now but there is always a higher vol you can sell. Work into spreads to give yourself efficient positions because you understand that high vol also means that you receive more theta for being less short gamma. Instead of trying to get as much of that sexy gamma for as little as possible, we're now trying to collect as much of that sweet, sweet theta as we can with as little movement risk as possible.