Options Jive

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Rolling Strangles - When, Where, How

Options Jive

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

One of the key things that separates a good trader from a poor trader is the reaction when your trading plan goes awry so we provide you with the info revealed by our studies which indicate the best way to react to a short strangle going against you and we also explain why that is so.

A graph of the price of the S&P 500 from September 14th to present was displayed. The market has experienced some large moves. Some positions have inevitably gone against you. Assuming you aren’t going to just close the position and instead will roll it the question then to be answered is how you roll it and why.

A graph of an example of a 1 standard deviation strangle in XYZ stock trading at $204 on December 29th was displayed. The short strangle strikes used were the $212 call and the $196 put.

A scenario of rolling down the untested side down in XYZ stock was displayed. On January 7th our $196 strike was tested so we rolled down the $212 call (untested side) down to the $201 call. Tom and Tony explained the reasoning behind doing this. For more information see the Market Measures on July 6, 2015.

A table showing the data from rolling the tested side to the same month was displayed. The table included the percentage profitable at expiration and average P/L per day on not rolling the untested side and rolling the tested side.

A second scenario of the position with already rolling down the untested side but the position is still going against us and we have crossed our breakeven point. We roll the entire position to the next month in this scenario. Tom and Tony explained the rationale.

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the takeaways and other insights you need to know about rolling Strangles when the markets don’t cooperate with your trading plan.

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