The Strangle

[Triplethought]

I've been thinking a lot about the 6 month "strangle" on DIA Sol mentioned in the update. At first it seems like betting on red and black on the roulette wheel - 50% proposition to win and lose. But the more I think about it it's TIME and volatility that could make it work. Sometime during the 6 months the Dow will go up and another time it would go down. So in theory you could sell your Put and your Call at the appropriate time (I assume they are not linked so we could do different times) to take your wins and this might work. Or maybe I don't understand and we're hoping to win more on the Call then we lose on the Put?

BUT. If we're playing on volatility (it's quiet....too quiet as they say in the cowboy and Indian movies) it seems like the Nasdaq and QQQM might be a better underlying stock to do a strangle on for 2 reasons:
A) the Nasdaq (or even Russel) could be more volatile than the Dow so more chance for upward and downward spikes
B) QQQM is cheaper to buy than even QQQ with a $119 underlying price. Because 100 shares on options can get expensive if you want to test the waters with less on the line.

Thoughts? Anyone have links to learn "how to strangle?" Thanks in advance

[MarkD]

I have used them and had mixed results, no big winners, high percent of losers. It's not something I have confidence in but can say Sol may have been right earlier when he said strangles are not working very well at this time. May take a look and let you know.

When I did use them, you can buy the put and call on TDAm individually or separately, and the same goes for selling. Don't like the price point TDAm would stick you with on the strangle buy so adjust to your own desire. They tend to be more expensive than necessary if you use their standard setup.

My experience states you want the price each option to be equivalent. So if the call is $5, look for a corresponding put around that price. And expect both positions can go to zippo. Tread carefully.

[AstuteShift]

Buying strangles when the VIX is in the low 20s to 30s imho is a recipe for disaster and doesn’t work well at all

However selling bull put spreads are pretty dam effective when the market is dropping substantial since the premium of the sell put out is so high and you hedge it with an outside put buy

This strategy I mention is really for traders with balls of steel and who have perfect risk management

[Triplethought]

This strategy I mention is really for traders with balls of steel and who have perfect risk management

Unfortunately my balls are made of regular flesh.

[AstuteShift]

This strategy I mention is really for traders with balls of steel and who have perfect risk management

Unfortunately my balls are made of regular flesh.

You can always paper trade until you get comfortable.

[symbios]

Buying strangles when the VIX is in the low 20s to 30s imho is a recipe for disaster and doesn’t work well at all

However selling bull put spreads are pretty dam effective when the market is dropping substantial since the premium of the sell put out is so high and you hedge it with an outside put buy

This strategy I mention is really for traders with balls of steel and who have perfect risk management

Interestingly, I was in a trading group where we meet every 3rd Friday of the month to trade expiring options and all the males in the group pales in comparison to the lady who technically has no balls and has a “Diamond guts” attitude towards risk. She sells naked puts and calls and sometimes strangles during earnings where she risks the entire year’s profit in a single trade..that convinced me that having balls isn’t enough..

[SOL]

For strangles, you need high volatility, balls, some luck and incredible discipline. If you are lacking in one of those areas you better sit out. Options, in general, come with large risks and one should always get into the trade with the idea of how much one is comfortable with losing. if you get in thinking of the upside-only you will get a hit that will shock you. Always be ready for anything

[AstuteShift]

For strangles, you need high volatility, balls, some luck and incredible discipline. If you are lacking in one of those areas you better sit out. Options, in general, come with large risks and one should always get into the trade with the idea of how much one is comfortable with losing. if you get in thinking of the upside-only you will get a hit that will shock you. Always be ready for anything

The issue is when the VIX is elevated you overpay for the premium and the market needs a monster move for you to make profit

It’s good for pre earning plays on individual stocks that tend to move big prior to earnings though, however that requires good knowledge of the Greeks (gamma)

Options is certainly not for noobies!

[Triplethought]

Options is certainly not for noobies!

I guess I better do a master class on options (anyone have a link?). I have bought some of Sol's calls and have sold puts on my own based on Sol's stock picks and so far the calls are positive and all 5 puts look pretty good (12-18 expiration). The Calls that were positive were spectacular but the ones like USAK that look like dogs right now aren't as much fun. At least I can tell myself that even if USAK is a 100% loss the BAC and GOOGL calls more than paid for it.

No one really addressed my logic of doing a strangle on QQQM versus DIA. I mean, assuming you were going to try a strangle, (which based on feedback here I probably won't) wouldn't doing one on QQQM make more sense for a newbie both the lower cost and higher volatility?

[Yodean]

Yeh, strangle plays, for me at least, usually end up with me strangling myself a bit.

[AstuteShift]

Options is certainly not for noobies!

I guess I better do a master class on options (anyone have a link?). I have bought some of Sol's calls and have sold puts on my own based on Sol's stock picks and so far the calls are positive and all 5 puts look pretty good (12-18 expiration). The Calls that were positive were spectacular but the ones like USAK that look like dogs right now aren't as much fun. At least I can tell myself that even if USAK is a 100% loss the BAC and GOOGL calls more than paid for it.

No one really addressed my logic of doing a strangle on QQQM versus DIA. I mean, assuming you were going to try a strangle, (which based on feedback here I probably won't) wouldn't doing one on QQQM make more sense for a newbie both the lower cost and higher volatility?

Doing strangles on the indexes usually has a very very low win rate, about 30-40 percent from my experience.

You are much better off buying debit spreads, more cost effective and the theta decay is lessened since you are buying a lower strike and selling a higher strike, example, DIA 330/340 call spread, it does cut your profit but it limits your risk.

Theta decay when buying options is an issue, everyday that goes by where the stock doesn’t move significantly or does move but barely, the option itself is turning more and more worthless

Hence, options is for advanced traders. Stock trading is more than enough to make gains and with less stress as well

I watched videos from tastytrade however be forewarned, they are a broker and want you to trade a ton. They do have a ton of information on advanced option strategies though which can be very useful. Ignore their slogans and bias though, they think options is Gods gift and that stock trading is for plebeians.

I was also previous member on steadyoptions.com who specialized in buy strangles and straddles and overall they will make you a better option trader. The only issue is that once again you trade a lot. It’s the opposite of SOLs philosophy and imho too stressful and too active. However it can be very useful info

Imho, the less I do the more I win. Markets love to push you for greed but that’s when you make mistakes, take bigger positions etc.

[Triplethought]

I watched videos from tastytrade however be forewarned, they are a broker and want you to trade a ton. They do have a ton of information on advanced option strategies though which can be very useful. Ignore their slogans and bias though, they think options is Gods gift and that stock trading is for plebeians.

I was also previous member on steadyoptions.com who specialized in buy strangles and straddles and overall they will make you a better option trader. The only issue is that once again you trade a lot. It’s the opposite of SOLs philosophy and imho too stressful and too active. However it can be very useful info

Imho, the less I do the more I win. Markets love to push you for greed but that’s when you make mistakes, take bigger positions etc.

Thanks for taking the time to post this AstuteShift. I *want* to think of myself as a smart & sophisticated trader but reading your post made me realize that I'm trying for "bragging rights" on the % upside of my portfolio rather than cool headed investing in things that are likely to win over a longer term.

I would rather have cash than brag.

I do "learn faster' when I have real money on the line versus paper trading (who has time for that and on options you never know what they fill at anyway?). I had been considering "taking bigger positions" (i.e changing my 1/3 lot size to doubling it across the board because I can't deploy more than 60% of funds using both TI AI portfolios (I haven't tried Thunder from down under) But I think I'm going to take your advice, cool my jets keep my lots small (so I won't lose sleep if I lose 100% of any call) and just see how the end of the year goes. After 12-18 when my puts expire I might consider another round of puts. While I have limited funds in the market, being patient that much less red ink assuming a dip (MOBO) happens in the next 6 months.

[AstuteShift]

Yea it takes honestly 3 to 5 years to be relaxed with options, most traders who do them specialize to them only. The Greeks such as theta, gamma, Vega, delta all seem foreign at first, but it’s the language of options, you know them then you know exactly what strategy specifically to pull in any market condition

Once you learn the advanced strategies, then you can take the market update and weaponize it to your advantage. Amazing stuff can be done once you know the trend.

Consider them like tools which you use from time to time.

Selling puts is honestly a great strategy in bull markets, especially in stocks you want to own. I use this all the time since if it doesn’t hit the strike I get paid and if it does then great! I’m in the stock I want to be in.

Honestly Half of my portfolio is in cash, waiting for the next juicy opportunities!

[AstuteShift]

Yeh, strangle plays, for me at least, usually end up with me strangling myself a bit.

You can even sell strangles, such as selling a call and put at the same time. This is when you don’t want the market or the individual stock you pick to move at all

If it stays at the same price, you win all the premium, usually this has a good win rate 60-70 percent but the problem is the losses are more extreme than the small winners of premium you collect

There is a term for option sellers in general, you are picking pennies in front of a steam roller. Collect the premium which is usually small then the market destroys you when it actually moves

Hence, why I stick with debit spreads, buying calls and selling puts or selling bull put spreads. We know the trend and we can utilitize the bullish option plays. Also these are the simplest plays to master as well. The other plays are good to know as well since eventually, the trend will turn bearish and you will want to know how to play that side as well.

Most options traders don’t care for trends and imho that’s a mistake. More money to be made being a trend player than a option market maker

The biggest advantage of options over stocks is you can limit your risk so perfectly and be extremely precise with how much money you put in each play. Considering majority of the plays SOL and his team picks, you will be winning big time and the losses are minimal at best.

However not all plays can be used with options and some I would rather just buy the stock. I always make sure to risk the same amount of capital per each trade, that way I don’t get picked with my pants down and my money down with it