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A Systematic Approach to Managing Weekly Short Straddles
The EP-AIM™ Automated Straddle Hedge System combines a weekly short straddle strategy with an always-in-the-market futures hedge. Rather than relying on market predictions, the system follows an algorithm designed to maintain continuous hedge coverage throughout each campaign.
When a new straddle campaign begins, a corresponding futures hedge is established. The hedge remains active throughout the campaign with stop-and-reverse logic that can switch between long and short positions as market conditions change. The objective is to manage directional risk while maintaining a disciplined, repeatable process.
EP-AIM uses an eleven-price ladder generated from proprietary ExitPoints analysis. The middle rung serves as the initial stop-and-reverse level. As markets move, hedge levels may be adjusted according to predefined ladder rules, creating a structured approach to trade management.
On Friday morning after the opening of normal trading hours A Friday expiration weekly call option and a put option are sold at the same strike price that is nearest to the current market price for each of the markets we are trading to establish a short straddle position. The automated AIM strategy is activated to establish a hedge position. The intent of the AIM is to always maintain a futures position that is in the direction of the short-term daily price trend.
Options assignment is reviewed and any remaining futures exposure is closed before the next campaign begins.
The system is designed to reduce emotional decision-making by replacing discretionary trade management with a consistent rules-based process. EP-AIM focuses on disciplined execution, risk management, and systematic hedge control.
The Always in the Market (AIM) Straddle System is a hedged futures trading methodology designed to offset and manage the directional risk of a short option straddle position. The system combines premium collection from selling options with an automated “always in the market” futures hedge that continuously maintains either a long or short futures position.
Each trading cycle begins on Friday morning when a short straddle is entered and a corresponding futures hedge position is opened based on the daily AIM-file signal. The AIM-file provides the current market direction, a stop-and-reverse price, and an eleven-level price ladder that acts as the framework for trade management. The middle price in the ladder represents the active stop-and-reverse level.
The hedge is managed using continuous stop-and-reverse logic. If the market reaches the active stop level, the current futures position is closed and immediately reversed into the opposite direction. A new stop-and-reverse order is then placed using the next appropriate rung in the ladder. As the market trends favorably, the system progressively “ratchets” the stop level higher for long positions or lower for short positions, effectively creating a trailing hedge mechanism.
A new AIM-file is generated each evening between 6:00 PM and 7:00 PM ET. The updated file may maintain the existing trend direction or signal a reversal. If the new AIM direction differs from the current hedge position, the system immediately adjusts by reversing the futures position during the evening session and resetting the stop-and-reverse order at the new ladder midpoint.
The objective of the AIM hedge is not necessarily to generate profits independently, but to reduce the directional exposure and volatility risk created by the short straddle. In trending conditions the hedge may produce gains that partially offset option losses, while in sideways or whipsaw markets the hedge may incur losses that are compensated by option premium decay.
The strategy concludes on Friday when the weekly options expire. Depending on the final settlement price, either the call or put option may be assigned, resulting in a futures position. A new campaign will have already started on Friday morning, so there will be two campaigns in progress during the Friday trading day. Options assignment is reviewed and action is taken to flatten any futures positions that are no longer needed for the ending campaign. The highest-volume and most liquid futures options contracts are typically used because they expire on Friday and provide the best combination of liquidity, pricing efficiency, and margin utilization.
Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and onlythose with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
