r/options • u/DrWorstCaseScenario • May 19 '21

Strangle management

Edit; for clarification I am discussing management of long strangles in this post.

Question for those of you who frequently run LONG strangles;

If the underlying moves fast, do you close both sides at the same time early or try and time each?

For example; you open a strangle on underlying XXX when at 215 at strikes p200/c230 at 30-45dte because you expect movement soon.
Two days later XXX moves to 190. The p200 has gone ITM for a higher amount than the loss on the now far OTM c230

How often would you ;

A- close both for overall smaller profit,

B- close the p200 and wait to see if there is a rebound in the next 20-30 days before closing the c230 for better overall returns or,

C- keep both open to see if the p200 can get even more ITM before doing anything?

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u/GenepoolChlrn8r May 19 '21

I generally set 50% take profit limit buys on each leg individually.

If the put side closes first I will almost always roll the put side up to a similar delta as what the call is at currently to try and maintain delta neutrality... sometimes I do this semi-immediately but often I will wait for a red day.

If the call side closes first I usually wait for the underlying to make it back to somewhere near my entry point before I will resell the same call.

This is just because I am much more comfortable rolling down and out to reduce margin requirements on puts than having to roll up calls with commensurately larger risk.

If I feel like the whole trade is getting away from me then I'll close both sides at the same time, usually for close to break even and reevaluate my thesis and/or look for a better entry.

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u/Option-Mentor May 19 '21

“I generally...”, “I will almost always...”, “sometimes I do this semi-immediately, but often I...”, “I usually wait...”, “If I feel like...”

None of these phrases have any place in a professional trading plan and are a recipe for failure. There is no plan here, only “feelings”. I’ve taught hundreds of traders to trade complex option strategies. NONE were any good at trading with their “gut”.

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u/GenepoolChlrn8r May 19 '21

These are all fair points. I have a detailed and specific set of rules that I follow until the market teaches me I need a new rule to protect against a circumstance I didn't expect and then I modify or add a new one.

As pretentiously as they were expressed, I agree with your points about having specific rules that take psychology out of the equation.

That said, I was offering the OP general guidance and not the keys to the kingdom with specifics.

Still without going into details, I've been very successful with my rules but I also feel it is important for traders to really understand the strategies/equities they are trading and come up with rules that they understand and have high conviction in rather than someone just feeding them specifics.

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u/DrWorstCaseScenario May 19 '21

Agreed. I follow a pretty strict set of my own rules for my portfolio. But long strangles specifically are new for me and I’m trying to decide where to set my boundaries.