We often use naked options to take directional positions in stocks, but what do we do when our strike is breached?
Today, we will look at defending aby selling the ATM when the strike is breached, which turns the trade into a .The Study
- SPY, 2005 to Present
- Sold 45 DTE Call (30 delta)
- Compared defensive tactics if the short call was breached with 30 days or less left in trade:
- Holding trade and managing at 50% if possible
- Adding ATM Short Put to make Straddle
When looking at all occurrences that the strike was breached, selling the Put turned average profits positive and kept the win rate the same, thus it helped minimize the losses on large losers.