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Rolling Straddles

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment reveals the results of a study of a strategy testing rolling the untested side of a short straddle when the break-even point has been breached. The results should help your trading.

Short straddles and short strangles can both go wrong. The tastytrade belief on a strangle is to roll out the untested side when one of the strikes is breached. This can’t be applied to straddles since, for all practical purposes, one side is always breached. Our strategy with straddles is to take action when the upside or downside breakeven is breached.

This study tests rolling the untested side closer to the ATM strike (forming an inverted strangle) and extending duration when the breakeven point is breached versus doing nothing. A study was conducted from June 2010 to present using the SPY, IWM and TLT. We sold an at-the-money (ATM) Straddle on the first trading day of the month using options closest to 45 days to expiration (DTE) and held to expiration. We rolled only when the breakeven of the Straddle was breached and rolled the untested side closer to the ATM strike (which formed an inverted Strangle) and rolled out to extend duration.

A table displayed the results of going inverted and rolling for duration versus not rolling at all. The table showed the P/L, percentage of profitability, average total credit and largest drawdown of both strategies.

We also tested how the strategy would perform under high IV, our typical entry criteria for straddles. A second table with the same criteria was displayed but limited to shorting the straddle when IV was high.

Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the takeaways and the results of the study to learn how rolling a short straddle should perform.

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