Transformation

N

NHS

I was wondering if there are any guidelines or best practices regarding the transformation of option strategies into other option strategies. Some case could be that you have a position and your outlook changes; you don’t want to close the position because it might cost commissions or losses and given your new outlook you want to “reuse” some of the legs. If the position contains two legs and one of the legs are perfect in a other strategy because of IV, strike, delta or other reason, so the guide should point out how to move to other strategies.

If anybody has a link or a book reference?
 
Charles Cottle's books are superb for this and give illustrated examples of multiple styles of adjustments. He even has a chart or two dealing with many of the ways to transform one named strategy into another. My only caveat is that knowing the name of the strategy is trivial compared to understanding what the strategy is trying to accomplish and how it will perform under various market scenarios. I'm sure that Charles would heartily second that opinion, as would anyone who trades options seriously.

The book that I have from him is called Options Trading: The Hidden Reality. It is not super easy to read, but he really knows his stuff so it's truly worth it. The graphs are also outstanding.

MTE's suggestion is also good. I've read that one, too.
 
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