How to hedge call side on Strangle?

R

res123

Hi All:

I had two naked puts on NFLX. I legged in naked calls for strangle when the stock started tanking to add negative delta. With many days left to expiration, I brought the strike price of Call even further turning it into a straddle at 260 and 280 (total of 2 contracts with different expiration dates)

Then came the strong upward move bringing the stock all the way to 297 with after market touching 300. To add positive delta I sold another put at 230.

I'll admit that I didn't fully understand all my options insofar hedging these naked positions other than rolling up/down the untested side.

In bit of a panic, I kept rolling up the naked Puts to a point where I ended with a total of three short Put contracts (way more my than my risk appetite), 2 contract of 270P expiring on Jan 25 and Feb 8, and 1 contract of 280P expiring Jan 18.

I closed the naked calls to avoid a disaster or my inability to hedge properly. Now I have three naked puts and with a delta of 85 and I am worried if the stock collapses for whatever reason how would one deal with that situation especially there is an earning date coming up?

Also, what were my options other than exiting the short call side? I may run the same fate in other strangles where call side is being tested.

Any insight is much appreciated.
 
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To be blunt, you do not sound like you are prepared to trade naked options. My suggestion would be to spend Monday closing the positions and move on to safer strategies for a while. Not only do you have little experiance with these, but you are doing this in the most volatile market since 2008. If you really want to "sell" options, try credit spreads where you losses are limited.

Learn to close positions when they go bad for a loss, rather than make a situation very complicated.

Good luck.
 
Robert- I understand why you said that. However, I mostly sell naked puts or spreads on stocks that I wish to own and am comfortable taking assignment so I can sell covered calls.

I am very conservative on the call side of strangle even try avoiding it. It's been a learning curve, still wanting to know how others would've managed hedging the short call side.
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The problem with the above scenario is that in my pursuit of adding positive delta I moved my strike price way above my targeted level to acquire stock. In doing so, I've added way more contracts than desired.

Thanks for the input.
 
res123 said:
Robert- I understand why you said that. However, I mostly sell naked puts or spreads on stocks that I wish to own and am comfortable taking assignment so I can sell covered calls.
More...

IMO, this does not work well. The traders that said they wants to own AAPL at 200, then 180, then 160 etc, said that when the stock was 220, but the world has changed. They always exit either at the low or end up holding the positions for a long time using up cash that could have been used for better trades . I have seen this too often. But it is your money.

The typical expectation on the perfect trade short option trade is to sell the put as the stock drops. As it reverts up, sell the calls to fade the rally. Hedging options when you already have a loss only increases risk. Even my example of selling a strangle is not really a good hedge just an aggressive short side trade.
 
Simple, get out of the strangle. This Neverending stupidity with hedging options positions on the retail side drives me nuts. Which retarded author recommended this crap in his book or courses?

You don't even understand the structures you got yourself into. The only logical thing to do is reduce complexity not add to it.

res123 said:
Hi All:

I had two naked puts on NFLX. I legged in naked calls for strangle when the stock started tanking to add negative delta. With many days left to expiration, I brought the strike price of Call even further turning it into a straddle at 260 and 280 (total of 2 contracts with different expiration dates)

Then came the strong upward move bringing the stock all the way to 297 with after market touching 300. To add positive delta I sold another put at 230.

I'll admit that I didn't fully understand all my options insofar hedging these naked positions other than rolling up/down the untested side.

In bit of a panic, I kept rolling up the naked Puts to a point where I ended with a total of three short Put contracts (way more my than my risk appetite), 2 contract of 270P expiring on Jan 25 and Feb 8, and 1 contract of 280P expiring Jan 18.

I closed the naked calls to avoid a disaster or my inability to hedge properly. Now I have three naked puts and with a delta of 85 and I am worried if the stock collapses for whatever reason how would one deal with that situation especially there is an earning date coming up?

Also, what were my options other than exiting the short call side? I may run the same fate in other strangles where call side is being tested.

Any insight is much appreciated.
More...
 
Dude you have no clue what you are talking about. Conservative? All you do is act like a total beginner and above that refuse wise advise. You essentially are acting counter momentum, buy when the market is tanking. When has this approach to markets ever worked? Your entire base premise is flawed.

As @Robert Morse tried to point to a similar direction in a much more polite way I would take his advice.

res123 said:
Robert- I understand why you said that. However, I mostly sell naked puts or spreads on stocks that I wish to own and am comfortable taking assignment so I can sell covered calls.

I am very conservative on the call side of strangle even try avoiding it. It's been a learning curve, still wanting to know how others would've managed hedging the short call side.
.
The problem with the above scenario is that in my pursuit of adding positive delta I moved my strike price way above my targeted level to acquire stock. In doing so, I've added way more contracts than desired.

Thanks for the input.
More...
 
GRULSTMRNN said:
Simple, get out of the strangle. This Neverending stupidity with hedging options positions on the retail side drives me nuts. Which retarded author recommended this crap in his book or courses?

You don't even understand the structures you got yourself into. The only logical thing to do is reduce complexity not add to it.
More...

I think people feel smart when they do this.
 
I take on board the suggestive criticism, but purely for knowledge base I wonder how others would manage a naked call or the short call of strangle other than closing it outright.
 
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The post title is actually useful: you buy a strangle, it goes directional. Do you close the other side of the strangle? Do you add more to the winning side? What do people do here?
 
res123 said:
I take on board the suggestive criticism, but purely for knowledge base I wonder how others would manage a naked call or the short call of strangle other than closing it outright.
More...

If you are looking for choices, I can tell you what professional managers do, but in the end, it is up to you to choose a process and stick to it. I have left out do nothing, and see where it lands. This works better with a portfolio.

When the loss hits a certain level: Risk increases from 1 to 3
  1. Close
  2. Roll 1 up to a more OTM options
  3. Roll up to a more OTM options but sell extra and keep the same credit level
When the option becomes ATM (Touches the strike): Risk increases from 1 to 3
  1. Close
  2. Roll 1 up to a more OTM options
  3. Roll up to a more OTM options but sell extra and keep the same credit level
 
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