If I purchase a straddle...say a January $430.00 Straddle on GOOG and a day after buying it GOOG drops 5 points...Can I sell to close just the PUT to take the profits and hold on to the CALL for when GOOG reverses and goes back to the upside? Or must both positions be closed out at the same time?
Staddle Question?
- Thread starter Star
- Start date
Yes you can, but you shouldn't!
If you have access to Lawrence McMillan's "Options as a Strategic Investment" check Chapter 18th "Buying Puts in Conjunction with Call Purchases" about straddle buying and follow-up actions (page 285 in my edition of the book).
McMillan describes the sort of follow-up you're planing as being inferior. Straddle buying is a limited risk with potentially unlimited profit strategy. By taking small profits you're reducing your chances for a substantial gain, while your aim should be to accept several small losses and waiting for a big winner whose magnitude will more than offset the sum of those small losses.
A better follow-up is to roll in the losing leg, in your case sell to close your 430 call and buy to open the 425 call. This way you won't limit your potential for large gains, while improving your risk exposure because your new position could be always sold for at least $5.
To summarize: if the underlying stock moves down to the next strike, you should consider rolling down your call, if it moves up you should consider rolling up your put.
If you have access to Lawrence McMillan's "Options as a Strategic Investment" check Chapter 18th "Buying Puts in Conjunction with Call Purchases" about straddle buying and follow-up actions (page 285 in my edition of the book).
McMillan describes the sort of follow-up you're planing as being inferior. Straddle buying is a limited risk with potentially unlimited profit strategy. By taking small profits you're reducing your chances for a substantial gain, while your aim should be to accept several small losses and waiting for a big winner whose magnitude will more than offset the sum of those small losses.
A better follow-up is to roll in the losing leg, in your case sell to close your 430 call and buy to open the 425 call. This way you won't limit your potential for large gains, while improving your risk exposure because your new position could be always sold for at least $5.
To summarize: if the underlying stock moves down to the next strike, you should consider rolling down your call, if it moves up you should consider rolling up your put.
Hi..Yes, what I was wondering is if after buying the straddle and say GOOG went down $5.00 and the Puts side of the straddle increased in value, could I just sell to close the PUT and keep the Call... (hoping that if GOOG turns around and rises, the call would then go up before expiration)
I have my account with Options Xpress who I really like a lot and when I went to see about a straddle when you place the order it will figure out the cost of both the call and put all in one transaction...so that is what got me to thinking...Can I close out the put to take the profit but leave the call open hoping GOOG would bounce back and even go up? or do I have to close out the complete straddle at the same time...all in one transaction..
Gawd, I really don't know if I am being clear in saying what I want to say
Oh, and BTW, I am a girl
, not a he..Thanks a lot and thanks to the others who have replied as well!
Star's offset of the profitable leg isn't a gamma-trade unless she's looking to reduce the exposure by offseting the put leg and going short stock into the remaining long call, obviously that's not her intention; that is, to reduce the position by 50%.
I would agree that it's better to maintain the spot position and book gamma profits by neutralizing deltas through the sale of 20-40delta options, or trading stock around the primary position -- unless the premium received from the ITM-leg is > the initial straddle-outlay.
I would agree that it's better to maintain the spot position and book gamma profits by neutralizing deltas through the sale of 20-40delta options, or trading stock around the primary position -- unless the premium received from the ITM-leg is > the initial straddle-outlay.
I thought Star's original question related to the mechanics of closing one leg of a straddle that was entered as a spread. Does she enter the order as a sale to "close" the put leg, or must she enter it as a new sale to "open"? I would assume the former, but it might depend on the platform.