Leaderboard

Kim, Question: I bought an AMZN Nov 16 1485/1490 strangle when the stock cratered on Tuesday. It's up considerably in only a day. Can you help me look at the exit of this trade more analytically? I'm torn between selling at open, setting a modest gain credit from here, or swinging for the fences and holding it close to close. PS. I stumbled onto Steady Options looking for options training only about a month ago... I was totally new to options. The idea of trading volatility was new to me. I made a small fortune trading QQQ strangles this month! I also protected my long positions with puts, sold calls on several of me long positions... all in, I've covered the cost of Steady Options for the next century in my first month.

He got a nice discount for signing up for the next century. Only $24,500 instead of $124,500. And he can transfer it to his children and grandchildren. But please don't tell anyone...

As with all straddles/strangles, the biggest downside of buying when IV is high is the risk of IV collapse. Of course if you get a big move, the gamma gains will more than offset the vega and theta losses. But if the move is not big enough, and your position is close to expiration, you have negative theta and negative vega working against you. So I would consider it as high risk high reward trade. As for trade management - personally I prefer to close both legs. If you close only the winning side (calls in this case), you are taking directional risk and betting on reversal. The only exception is when there is very little value left in the losing side, so it might not even be worth it to close it.