Strangle Management?

K

Kurt_From_RVA

Hey folks,

Here's the deal.. Sold a weekly strangle on SPY Monday 6/27 roughly 1 stdve out with a short put @ 194, and a short call @ 205. Sold the strangle for .88. Obviously this one went against me and the call went ITM. I rolled up the put option to 202 for a credit of .30 this morning. Now here is what I'm curious to see what others would've done. I rolled up the call to 208 for a debit of 1.29. I have been seeing a lot of recommendations for managing this type of trade only rolling up the untested side but leaving the other side put. Or God forbid it even ending up inverted. I felt like rolling up the call as well was the best idea for defense because of the options reduced probability of expiring ITM, and using theta to my advantage until Friday. Basically I'm wondering others management techniques for handling strangles that have gone against you like this.
 
What's the difference between rolling and trading out of the position... nothing.. your just doing mental tricks.... pick an expiry you can add to farther out if your gonna add to a losing postion
 
I understand what your saying about not trying to outsmart the situation, that you are only fooling yourself, and I understand that this is a common thing among options traders. In this scenario would you just cover when one of the strikes goes ITM, and leave the other one open? How would you manage this position different? Thanks for the quick response. I'm basically down to learning management of positions and am learning mostly from experience at this time.
 
I have a feeling your punting then wanting to do recovery plays on bad punts... ask yourself what have I personally done to research my trading method... your martingaleing into a potential deep abyss... might work for a while rolling out strikes but in the long run you bust. I suggest start back at the drawing board... the more general method .. one trade is just one trade
 
I close my losing strangles if they reach a loss equal to two times the initial credit received. I am not a big fan of rolling positions, but that's just my preference.
 
That's the method I usually stick with. I was interested to see the possibilities that rolling can offer. I can see some instances where it could be useful, but on the whole it's probably better to admit you are wrong and get out..
 
Just to finish up this trade, I ended up closing the 208 call for a .72 debit a little while ago. so I basically lost another .51 trying to roll this up and recovering .30. i basically spent 2.01 to close. I had the chance to close the short call for 1.50, at the time I was looking to set up the roll and should've taken it, but experience is the best teacher.
 
Kurt_From_RVA said:
Just to finish up this trade, I ended up closing the 208 call for a .72 debit a little while ago. so I basically lost another .51 trying to roll this up and recovering .30. i basically spent 2.01 to close. I had the chance to close the short call for 1.50, at the time I was looking to set up the roll and should've taken it, but experience is the best teacher.
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The whole concept of splitting a complex position once it goes bad is truly not an ideal one. Doing this is the equivalent of closing the winners early and letting the losers run amok (to paraphrase a common saying in the trading world).

When I approach trades with options is because I have a thesis about implied/realized volatility that I express with a particular setup (most of the time it is a complex one). I treat the setup as an atomic position no matter how many legs are involved. If the trade starts to go wrong because the thesis is wrong, then I close the whole thing and move on.
 
Alright here's a new question.. MDLZ is releasing earnings 7-27-16 and you want to make an IV related trade, and you have a bullish bias. You log into thinkorswim or whatever you use, and see that you can sell a put spread immediately for a .37 credit with a maximum risk of 263, and a 78% chance of earning some profit. To me the minimum price you should take this trade at, all other things remaining equal, would be for a .66 credit. Would you guys just continue to watch this spread analyzing the probabilities to the potential risk and reward and eventually take the trade of the math worked out?
 
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