What is a Short Strangle & How do I Trade it?
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- Опубликовано: 9 сен 2024
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this is the first video that actually made options click for me. I've been (relatively) successfully trading equities but I've hit a wall. I'm ready for options.
Nice! I love hearing that! Glad you enjoyed the segment!
how is it going now?
How bout now?
And now?
And now?
Yes, using A example with numbers after the theory explanation would be awesome and helpful!
Agree. Example with numbers is much better than zig zag lines.
Nice video. It would be better if you provide an example using numbers.
What's your typical DTE for short a strangle I would assume about 45 days?
Great explanation Mike. Such an old video but it popped up on my feed recently lol.
Mike, interesting visual. What happens if the stock price pierces either the Put or Call side but then comes back into the range before expiration date?
Is this a situation that requires intervention by the option trader?
Wonderful...nice presentation..
What exactly is the advantage of this strategy over say just selling two OTM put options or call options. If your belief is that the market will go sideways for a given timeframe, wouldn't all three essentially profit equally?
Good question! The alternatives would have a higher volatility of P/L prior to expiration since they don't hedge each other like a strangle does. Outside of that though, you would not have risk on one side if you chose just a put or just a call, so you could become profitable more quickly, but that also means you could see big losses more quickly as well if the stock moves against you.
The question is really WHERE you want risk, and how you want to achieve that if you end up trading a product.
1) What's the consideration for Earnings Play on Stock where the IV is super high relatively to the back-months for Short Strangle vs Short Straddle
2) What's the consideration in changing this to a defined trade with either a) Iron Condor / Fly b) Strangle / Straddle (Back-month) Swap or Straddle / Straddle Swap (Double Diagonal Spread) to take advantage of Horizontal Skew (IV Crush), and Vertical Skew (Smiles)?
3) Would it be safer to go with Defined Risks Trades (2) in general (less BP, and limit loss in case of swanish events / bigly moves outside of Expected Moves) over nakeds (1)?
V nice explanation & video.... does it make sense to square the trade prior to expiry?
Raj,
We usually like to close or roll a trade 7-21 days prior to expiry to avoid gamma risk & assignment risk, but it's really up to you.
what are the criteria's to choose an underlying for short strangle? How to choose a stock and the short legs?
On the same underlying or in general what is bigger? the profit zone on a strangle, or a straddle? Im really enjoying all the content and have been trading options successfully thanks to you guys at TT
Profit zone will be slightly bigger with a strangle, but max profit will be lower. Thanks for your support!
Great explanation Mike !
Thank you. Nice video
what will happen if I do same strategy with ITM put and ITM call sell? how they will get settled on expiry if the strike price stays between BEPs?
Does anyone adjust to collect more premium from the untested side, say....if it went up to 50% profit?
What if you keep adjusting? So, when the tested side becomes untested, you adjust and collect high premium again.
This will tighten your window to stay in the money though, I suppose.
So let's say it's 10 a share would you do a 12dollar put and a 8 dollar call? Or would it be the other way around ?
Wonderful sir
Hi. Nice vdo. I have a doubt. When will the Options seller get the premium when he/she sells Options. Can we do short strangle on a daily basis, exit the trade and expect to get the premium credited daily in our account or is the premium credited only during the expiry day. Pls advise ASAP.
The only way to keep the full premium is to hold the position all the way until the expiration date...and both options must expire out of the money. You can also close the strangle before expiration if its value has dropped enough to make for a significant profit. So for example, if you sell a strangle for $100 in credit, you could buy it back once the price drops to $50 and therefore make a $50 profit.
Would you also close a straddle together just like you close a strangle together ?
Hey Luis! Yes you would close a straddle just like you would close a strangle!
Hi! I’m new to options and I’m wondering why not buy a strangle instead? I get the part about receiving premium but if they’re at the money at expiration there’s the risk of being assigned (which really scares me). New subscriber to your channel 😊
When buying a strangle, we need the stock to move significantly to be profitable at expiration - assignment on short options is pretty rare if there is a lot of extrinsic value in the option still - assignment typically happens much closer to expiration if the option is ITM, and we can close out of the trade if we feel like assignment risk is high and we no longer want to be in it.
Do I have to wait upon expiration to close?
You mention that you usually put on the trade as a package. Perhaps it’s more lucrative to put on the legs separately i.e. sell the put when the stock is falling and sell the call when the stock is rising. That way, you can maximize the premiums, no ?
In theory if you timed everything perfectly you could put yourself in a better spot, but this is extremely difficult.
The flip side is selling the put and waiting for a rally to sell the call, but that might not ever happen. Now the stock would be much closer to the put side and you never sold the call to hedge the put, so the same strike call would have a much lower premium than before.
It goes both ways!
I was thinking the same thing... Have you tried this during the past years?
when do you close if the underlying does go out of the profitable range?
Good question! If we're not planning on managing it through rolling, we typically create a stop loss before we put the trade on, in the form of a multiple of credit received - for example if I collect $1.00 to open the trade, I might close it if I see a $2.00 loss.
great video
Can you close the transaction before the expiration date and still profit? Thank you!
yes you can
Hey Kamran! Yes you can...if for example you sell a strangle for $100 in credit, you could buy it back once the price drops to $50 and therefore make a $50 profit.
So...if I want it to leave that zone, I buy the call and put?
Does anyone know if webull allows short strangles?
Thanks for the lesson. Is there a strategy like this used in buying call and put?
Not really one that we trade - our long option strategies are typically calendar/diagonal spreads and vertical spreads.
yes it's called long strangle
do you have a video that covers what to do if the call you sold is violated?
Here's a segment on strangle management: www.google.com/url?client=internal-element-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/trade-managers/episodes/strangle-management-01-29-2018&sa=U&ved=2ahUKEwi_nrbohfroAhXyB50JHU6VB6UQFjAAegQIABAC&usg=AOvVaw0qrU3xcvXJRQyE0_ejPr5x
You do a great job explain this trade set up. I need to know the exact steps please please..
Buy to open.....sell to close....or which of these when.
Hey Marion! For.a short strangle shown in the video, it would be sell to open and then buy to close.
Good job
No says what happens when the stock goes past the strike price
can I assume because of the very risky nature of this trade you will close this at a desired profit. If so is this around the 50% mark. thanks
Yes, it's generally best practice to close these positions early. 50% profit is an excellent target which is what I use as well.
Do you need to own the stocks for this?
You do not in a margin account, but if you do own 100 shares, this same strategy would be a "covered strangle", since you'd have no risk to the upside with your long shares covering risk on the short call, and you'd have the ability to get into more shares at your put strike if the stock dropped to there. It's a popular "i want more shares at a lower price but I also want to reduce basis on my current shares" strategy.
tastytrade Thank you so much
You can sell puts? Good for you.
Huh
What is the best option for trading earnings announcements for stocks that have a high probability (but not certainty) of beating expectations?
Earnings are tough, a stock could beat earnings and it could be perceived as a miss, and the stock could fall. We just bank on implied volatility contracting, which benefits the premium seller on a small move or non-move.
tastytrade is that the same thing as IV crush?
@@Painfulwhale360 yes
What is the best time for short strangle
Totally up to you, but I prefer to sell them in high IV environments where I expect an IV contraction shortly after. That allows me to set the trade in the high IV setting with wide strikes, and if IV contracts after the fact, premium tends to decay rapidly as the expected range collapses in on the stock price.
If you're confident in a specific price range at expiration (like this strategy implies), is it not better (more profitable) to just pay a debit for a butterfly with the wings at your expected range? Perhaps a short strangle is safer because if you're wrong about the range you still have a good chance to break even?
This is bad. Rolling your positions ad nauseum is guaranteed to lose you a lot of money. This is why I only sell strangles on stock I wouldn't mind owning. I never roll. If I get assigned, that's cool. If price goes up and approaches the call strike, I just buy the stock and cover myself. If it gets called, great. If it goes back down whatever, I'll just sell another call at expiration.
I'm still learning all this but it seems to me that it makes more sense opening a short call or put according to the price direction. When the stock price goes up the calls premium will be bigger. Same thing when the price goes down making the put premium bigger. Am I missing something?
What is your most popular trading strategy? (Strategy which has the most numbers of trades in a year)
This one is by far the most popular strategy that I use.
This is so confusing I can’t visualize or understand the credit part
Would you recommend staying in the trade until expiration? You make it sound like the probability of profit is very high. Is that the case? Or does it depend on the strikes you select?
Probability of profit depends on the strikes selected, but increases over time if the stock price doesn't move, because the stock would need to make a huge move in a short amount of time which is unlikely.
We normally manage our winners at 50% with strangles, because we don't see a reason to hold out for those last few pennies and hold all of the risk. The more unrealized profit we see, the more risk we hold since we can only make so much more, but lose everything we've made so far + original risk.
@@tastyliveshow In this particular case, doesn't time decay work for you?
@@SankalpAnand Yes - time decay benefits the option seller in this case, not only because extrinsic value is depleting, but because the standard deviations of the expected move are also collapsing as time gets close to 0 days to expiration.
How would you collect 50% profit if both sides are always working against each other?
Because extrinsic value must be $0.00 at expiration, so even if they're hedging each other in the short term, if they stay OTM they'll be worthless at expiration.
@@tastyliveshow Got it. I understand that part. So the only way to collect 50% profit 21 days in, just as an example, would be if time decay wore both sides of the trade down?
@@wnderbread9978 Time decay, or an IV contraction, or both.
@@tastyliveshow Awesome. Makes sense. Thanks for the replies.!
The sides work against each other when the stock moves. If the stock doesn’t move, but time goes on, you can bank 50% on theta decay
Why not actually show it live... Do you realize how much more beneficial that would be to your audience?
No discussion of capital required to place this trade.
You can't make this covered ??
You certainly can, but if it was a covered strangle the management tactics would differ as there is no risk to the upside.
@@tastyliveshow could you explain further? how will the tactics be different?
I can’t sell puts most of the time due to insufficient funds for collateral
riseuplight look into straddles or iron condors
Keep it simple sir pls
This is a balls up. He starts taking about a break even way too early. He should explain each leg and then get to that. Not a disciplined and thought out explanation.
What the frank
I'm about to YOLO March 20 140 calls and march 20 120 puts on ROKU hopefully some of you do this too and maybe we can go yachting together!
Everett Lilly Oops.
RIP