trading situation

Baozi

Baozi

Let's say that I was long a strangle because I expected some huge movement, and that actually the movement happened. The original strangle was around 16 delta on both sides.

After the big move, one side is making money and is now at 30 delta, while the other side is losing a bit, and is around 10ish delta. There is still plenty of time to expiration, around 120 DTE.

What would be the next move? Sell everything? sell the winning side? sell the losing side? short a straddle to get some sort of unbalanced iron butterfly? short only on one side?

My instinct would be to close everything and take the profit, however considering that there is still plenty of time to expiration maybe I could do something to capitalize on the initial gain. What do you guys think?
 
Way too many people do *not* do what you're doing right now -- trading positions when it's handy, but recognizing that trading component parts is part of the very same game.

Question #1 from here is, "What is your expectation for future movement?" That steers a lot of long/short and call/put questions.
Another way to pose it is -- and probably the *better* way, is "Given the current movement + market price, what brand new position would I open, were I not already in this market right now?"
 
not going to approach this from a theoretical point of view, simply what I would look at.

it depends i think on your expectations for the underlying moving forward and what you would do if you were going to put a position on today. you could hedge via the underlying to lock in some gains, sell out the entire position, sell an option on the side with movement (i.e. if the stock explodes up convert into put+debit call spread) to lock in some gain, or sell and redeploy at different strikes. you could also sell in a nearer term expiry to convert the strangle into a double calendar if for some reason you feel the need.

it really depends on your forward expectations as well as the new vol structure after the "huge" (assuming unexpected by other market participants) movement.
 
Is this a real or theoretical trade ?

Not certain a move from 16/16 delta strangle to a 30/10 delta strangle will have generated much profit ( unless there has been a decent pop higher in Vol ) as both options still OTM

As previous posts have suggested
... you can reverse engineer the position you would now like to have ... given your current views on Market direction / Vol / etc ... and adjust accordingly or
... if you intend to 'swing trade' the position ... sell some premium against the 30 delta option ( outrights, verticals, twofers ) ... possible add some cheap leverage against the 10 delta option
 
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