A fellow I am aware of does short strangles on V on a weekly basis. He typically has a $10 spread between the two strikes with the underlying in the middle. For example, V is at $175 right now, so he'll sell a $170 put and sell a $180 call. He usually initiates these on a Monday or Tuesday. I am fond of this setup, however, the problem is I don't have enough spare cash in this account to cover the put side. So I'm curious, does anyone do such short term trades using options and if so, what strategy do you use?
Looking for Short Term Strategies
- Thread starter artvandaley
- Start date
The call side should require a similar amount of collateral. I have been doing this strategy as well for years. Although usually around earnings. I usually sell the put side closer to the money than the call side because we have been in a bull market and I like to maintain a long-bias. Some positions I take assignment and then sell options to neutralize delta until the position gets called away. Lately though, I find that I really want to keep my exposure reduced so I have mostly stopped doing that strategy. Over the past few months, I have really cut down my exposure and reduced my risk because I don't really want to own the underlying. I think there's more downside risk than upside. I'm probably completely wrong for thinking that way as that seems to be a common view, but I just think we're getting into the later innings of this ballgame. Yeah, I could sell only calls, but earnings expectations have also been lowered and therefore should be easier to beat.
to the OP:
yes you can do this strategy (I also do something similar) but never take too much risk. How much is too much risk? Among option veterans the consensus seems to be that your Theta must be below 1% of your capital. If you don't know what Theta is, I suggest studying a bit the greeks before trading options.
on a side note:
usually the crash comes when nobody expects it. When everyone buys puts waiting for the crash, it probably won't come...
yes you can do this strategy (I also do something similar) but never take too much risk. How much is too much risk? Among option veterans the consensus seems to be that your Theta must be below 1% of your capital. If you don't know what Theta is, I suggest studying a bit the greeks before trading options.
on a side note:
usually the crash comes when nobody expects it. When everyone buys puts waiting for the crash, it probably won't come...
The margin requirement for a short strangle is the larger margin amount of either side plus the premium from the other side. Broker can ask for more. With naked positions, trade small because tail risk is a bitch.
A margin consideration alternative might be selling an Iron Condor. The long legs will cut into the potential profit but the margin will be limited and the tail risk will be mitigated.
A margin consideration alternative might be selling an Iron Condor. The long legs will cut into the potential profit but the margin will be limited and the tail risk will be mitigated.