Re-centering a short strangle
- Thread starter MrAgi1
- Start date
Er... cost seems like it would be the first and most obvious one. But there's one that's less obvious but much worse: you were wrong on your perspective when you opened this trade - i.e., predicted that the price wouldn't move, and it did. Why would you remake the same bet with the same neutral perspective and in the same underlying, at a much worse price, when you've already been proven wrong in the current environment? Unless something in that environment changed - and you losing money does not affect how that stock will move - why wouldn't you rethink your prediction/view? And why would you think that it won't happen again and again and again?
Last, you'd be progressively lowering your P&L by a big chunk every time while leaving your risk exposure the same. Even if, in your view, the risk was reasonably priced at entry, that RRR gets much worse after every one of these adjustments. Even if you can justify jumping out of a second-story window for $100k, doing it for a buck and a cup of coffee just doesn't seem like a good bet...
Last, you'd be progressively lowering your P&L by a big chunk every time while leaving your risk exposure the same. Even if, in your view, the risk was reasonably priced at entry, that RRR gets much worse after every one of these adjustments. Even if you can justify jumping out of a second-story window for $100k, doing it for a buck and a cup of coffee just doesn't seem like a good bet...
Ok I get it. Opening a new trade with less profit potential and same risk does not sound like a good.
However, what about rolling out in time, which is talked about by most options expert as an adjustment technique. It’s essentially a neutral perspective trade with same underlying, only that time increased. Additionally, the stock price is still closer to one of the legs. Lastly, both strategies are essentially closing an old trade and opening a new one.
What are pros of such a trade either?
Well rethinking your view either does not mean you can’t still be wrong again. Well what if you roll out in time but think it’s still going to range and it ends up not ranging?
What if you go directional and it ends up going the other way?
Lastly you could chose to close the trade, but this trade but the market might come back to that range.
Trading and options seems to be one big gambling machine. Every view is subjective and no one can predict the future.
So what’s the point?
It appears the only people that make money consistently from trading are the course sellers and brokers/market makers. T.A or fundamentals are all subjective and working quant strategies fall of with time. The market is almost always so random and the predictable parts seems to already be priced in on options and the underlying.
So what’s the point?
Much better read as "recommended by Tastyworks, which is a broker whose interests are not aligned with yours".
The technical aspects of options take some effort to learn, but you can get them straight from the books; no "experts" needed (note that I'm not saying this about trading options; that's a different kettle of fish.) You can figure out the effects of rolling by simply looking at the option chain (oh, look - it's a pair of reverse calendars!) and maybe running a BSM calc a couple of times to see what happens to the prices for those as vol rises/drops. While you're there, you could glance at the term structure and see what the market is implying for that further expiration.
Oh-oh. Only?
What do you suppose happens to your theta, gamma, and vega as you go out further in time? Another thing to check on that option chain...Well, this is why rolls of this sort often include a shift of the strikes to recenter their span - and they use the credit received for taking those increases in time and vol risk to pay for that shift.
Those are all excellent points - or at least questions that you need to answer for yourself (and that is the hard part of trading.) It's why many people recommend that you learn to trade D1 before you even think about trading options. Yes, you can only express a binary view - but there are a lot fewer variables to keep track of.
That's the nature of the beast - nothing to do with options. As a hint, though? Once you've closed a trade, let it go. Anybody can play "if I had just done X, Y, or Z" games with their own mind, but it's just a stupid way to torture yourself.
Last edited:
True... sorta. Some people are highly successful at it, on a repeated basis and for many years. Those are not accidents, and there's definitely a skill component to it.
There may not be any - for you. If you don't believe that you can get to a skill level that will pay for the effort, or it doesn't attract you strongly enough to go through it, then don't! It's certainly not for everybody, no matter how much all these "gurus" and brokers tell you how easy it is. In fact, if you find out that it's not your jam, I'd suggest getting the hell away from it as quickly as possible. I'm not kidding in the least. You could get really badly hurt in a moment if you don't know what you're doing.Thinking about it, that makes sense. Got it.Much better read as "recommended by Tastyworks, which is a broker whose interests are not aligned with yours".
The technical aspects of options take some effort to learn, but you can get them straight from the books; no "experts" needed (note that I'm not saying this about trading options; that's a different kettle of fish.) You can figure out the effects of rolling by simply looking at the option chain (oh, look - it's a pair of reverse calendars!) and maybe running a BSM calc a couple of times to see what happens to the prices for those as vol rises/drops. While you're there, you could glance at the term structure and see what the market is implying for that further expiration.
Oh-oh. Only?
Well, this is why rolls of this sort often include a shift of the strikes to recenter their span - and they use the credit received for taking those increases in time and vol risk to pay for that shift.
Ok, I get your point, that it’s some skill game and some people are successful at it.True... sorta. Some people are highly successful at it, on a repeated basis and for many years. Those are not accidents, and there's definitely a skill component to it.
However, let’s ignore options(non-directional trading), you are betting/trading on market a market that is almost always random in price. How is this different than the casino bets, although it is a discrete bet market, it is also random like trading?
There are also a few successful gamblers, something that looks like outliers to me.
What do you think?