My Strategy for Trading Short Strangles

[JUANEBAT 10]

I take time planning the trade. Select stocks with high historical volatility , good premium

and with potential to enter in a period of relative calm . (A lot of uncertainty here)

Look at the chart , and see the true range of price, trend support and resistance and no pending earning , better if starting in a consolidation phase.

With as little spread as possible ...good vol and liquidity

Usually I am rather neutral on the direction of the underlying

I sell short term , sometimes weekly or no more than a month.

Only high liquid and shortable if possible or if not shortable at least with if an ETF reverse

Delta less than 0.30 , better less than 0.25.

 

The risk/reward is really bad a lot of risk for relatively small reward. But the chance to be

right in one side is 100% for a profit of usually $300 to $400 , the risk in the side that goes against me , is controlled with strict rules , not too soon , not too late .

If market condition, momentum etc indicate that the call is approaching danger zone, like

increasing delta, poor decaying, news, etc. Immediatly I BUY the stock, size according

moneyness of the option, sentiment or other factors but never less than half (500 shares if 10 contract sold) , .

Unless the price of the underlyng is going away too fast I don't buy to close , because doing so I convert paper loss in real loss , and getting exercised I keep the premium and

hedged over the weekend in case keep going against me.

Does it make sense..."the highlighted part " or I am wrong.. TELL ME!

[JUANEBAT 10]

Thanks pathfinder.

To summarize , the points I wanted to make are.

1.- Avoid excessive fear to be exercise . Sometimes is very good to be exercise . (Next monday went up , and did make money !

2.- When you sell OTM options either naked or covered , to be exercise near the

money or at the money is better than to buy back to close the position.(You don't loose your premium)

It do not means to let a naked put or call go too far against you , but what I do is

when it is getting " in a dangerous zone " , I cover it ...with a long position for a call ,

(With stop loss also) or with a short position (sell short ) in case of a put ..but rather

if market condition warrants try not to buy back , especially if covered and guided by the delta , gamma and thete and intuition.

4.- All of the above is work in progress , but as I have tendency to excessive fear

to loose.... selling OTM so far is working... In order not to be hook up to the computer all the time ...I will try and experiment more with automatic conditional ordes like OTO and OCO.....

5.- Also everything go on cycles ... OUR moods, our psycology change, traders mood ,

many of us are bipolar which is fine, or perhaps a little paranoid, or even worse, which is normal , but affect how we react to danger and to the the market, I look frequently to 10 years chart to remind me what happens when we were in a very similar graphic like the one's we are today ..

I repeat in a different way what I already said because I realize my syntax can be confusing:crap: