10-Delta Short Strangles

[caroy]

I'm not an expert by any means, and in fact am just a neophyte, but I'd say in future to have more faith in delta. 5 delta is WAY out there, and implies about a 95% chance that AMZN wasn't going to hit 3120 by the close Friday. And as you said, it didn't. The low for the week looks to be about 3177. I ran the trade through Thinkorswim's OnDemand feature, and at the close Thursday, with AMZN at about 3177, your 3120P had a delta of only 11, which is still very low.

You started out doing what I would've done, rolling down the Call. Did you go for a certain delta there, or just 100 closer to the money or something? It looks like it might've been at about 11-delta. Given the trend of AMZN, I might've gone with a 20-delta Call there, which would've gotten you more premium of course. Or you could've rolled it down again later in the week.

And don't forget that your 5.94 credit meant that your lower break-even was actually at about 3114, not 3120, so you had some room to play with there.

I'm glad the trade worked out for you though.

Thanks for the response much appreciated. I guess I find the risk to be intolerable this close to expiration. The gap, strange news, whatever could send it collapsing my gamma risk blows up. I had an experience where I had legged out of a butterfly in GME once and left short puts on a body as there was no bid. Result of a partial fill. I forget the exact pricing but something like a 140 put and it goes off the board at 144 so safe but then there is the whole after hour trading situation where the options don't trade and then I'm wondering if i'm going to be assigned on a ten lot of puts and calculating the capital requirements for a 1000 shares of the Game Stonk and the risk i'm putting out there. In real life I just don't like the risk growing and growing so the adjustments although limiting the profits are allowing me to sleep at night.

 

[caroy]

You actually did something quite rare and good compared to almost every inexperienced vol seller; when your risk and various exposures rose due to spot movement you actually reduced risk and gamma back down with your subsequent trades, instead of engaging in an unwitting martingale by doing nothing and hoping to be bailed out

@ Magic Thanks for this. Even though in the end the adjustment was deemed not needed by final price of the underlying it seemed necessary given the risk was building. I went with buying the debit spreads as the jump in vol makes them an affordable option with possible 1:8 or 1:9 pay outs. I'm trying to think what my next step would have been had it continued to gap down. Probably just take my 2x loss on the position and move on. But with these naked short positions I don't like presuming I would be able to get filled as the bid-asks widen and rape a fill prices set in.