Our studies have demonstrated the importance of managing winners when positions go our way. It’s also important to know when and how to roll positions when they go wrong. Offense is important but you can’t neglect your defense. We provide defense mechanisms for Strangles, Iron Condors (both “traditional” and “wide wing”), Straddles and Calendar Spreads.
A graphic showing how to defend a Strangle in which your position was tested on the Call or Put side was displayed. The graphic showed that we roll the untested side (up or down) to the new 30 Delta Call or Put using the same expiration month. We then remove both positions when position reaches 50% of the initial credit received or roll out to the next month’s expiration to extend duration.
Tom noted, “You're chasing by adjusting strikes and tweaking the Delta without adding any more capital to the trade. If that doesn't work we roll horizontally to the next month to reduce your Delta and extend Duration, If that doesn't work we again roll the untested side (up or down) to the at-the-money (ATM) strike or if need be go inverted.”
A graphic showing how to defend a normal Iron Condor was displayed. Iron Condors are defined risk trades so we generally do not manage the positions and let the probabilities play out. An alternative to try to defend this trade is to take off the long options (wings) near expiration and roll the short strikes to a further month using the same strategy as a Strangle (see below).
A graphic showing how to defend a Wide/Dynamic Iron Condor was displayed. Although these are “defined risk” trades the long options or wings are generally far away and it acts more like an undefined risk trade. We can defend the trade by rolling the untested short side to a 30 to 50 delta. If little time (or extrinsic value) is remaining we will roll the position to the next expiration cycle.
A graphic showing how to defend a short Straddle was displayed. When trading a Straddle we start to defend when our breakeven prices are tested. We defend it by going inverted on the position by rolling the untested call down (or untested put up) to the (new) 30 to 50 delta strike and roll the entire position out to the next expiration to allow more time to be right. Positions are then managed at 50% of the initial credit received.
A final graphic showing how to defend a Calendar Spread was displayed. The graphic showed that if we have two months between the short and back month options, we will generally roll the short option to the next month to gain more credit and allow more time which provides more time for our position to be right. If the Calendar spread is in two subsequent months we generally will not manage the position but instead close the position if the odds are no longer in our favor.
Watch this segment of Best Practices with Tom Sosnoff and Tony Battista for a detailed explanation on how to defend trades that go against us.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.