Strangle Me Pls

[notmisa]

I’d love to learn more about Valhalla’s experience with the “strangle” strategy. I saw @rexxxar has been using it, and would like to go a bit deeper on what to look out for with this strat.

As I understand it, it benefits off of volatility in either direction.

Is there an optimal spread between the call and the put that you guys are looking at while setting it up?

Is is better to choose a shorter expiration if you know there’s a catalyst that will cause immediate price movement in the short-term?

Any insight would be greatly appreciated.

[rexxxar]

Hey bud, I’ve only been testing spreads since December–and only on the Buy side, not sell (yet).

Here are some pointers one might benefit from, based on my short experience:
A) You are on track about it benefitting from volatility from both sides, so that’s what you want to watch out for.
Look for Low Volatility days and time frames to enter on your chosen tickers.
Each have varying factors like price, sentiment, market ranking and/or funds listings, news and events.

B) You want to follow 1 ticker at a time. For me it was AMC that I tracked and tested first, then it was the EV tickers.
It takes time to mark high and low premiums in my mind, so it took me a while for each ticker.
You’re probably better so it can be faster for you, but take notes.

C) Strangle strat is very specific–it doesn’t benefit every play.
You’ll have to compare it with Straddles, Vertical spreads, and other spreads.
Every spread strat will require a lot of testing.

D) You will also need to match the strats to your emotions.
Basic, I know. But what helps me now is the discipline I’ve been training myself with.
I see gains, I exit before the day ends–unless I see more volatility ahead and other stuff that I mentioned above.

E) Specific to Strangles now, I find it really useful for plays that I need legs Near or ATM.
Straddles are more for OTM and with even greater volatility.
For example today with AMC, I pick strangles since imho, AMC won’t be jumping past 25 yet.

I only know TradeStation that has an Options paper trading feature.
They require one to deposit $500 to a Live trading account, before you’re given access to the Options paper trading.
And there are details about it that’s best discussed on another thread, but you might want to look into that for testing, before you go live with spreads.

Others should jump in here soon now. Have fun!

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Since going live with spreads, it’s proven to be the most consistent profitable approach for my trades.
It might work for you too, but again, you’ll have to test it first.

[Kryptek]

Strangle is not really a whole lot different from a straddle, you are basically paying more upfront premium to reduce the underlying movement needed to exceed breakeven. Look at the pricing analysis below, the two actually are the same strategy if you consider the blue flat part be a variable of any distance between the 2 strikes that you choose.

As far as choosing expirations, I personally don’t think it matters the duration as long as it’s after whatever event that you think is going to cause it to move. Even if you pick a far out dated one you will still get good movement if the underlying starts to move. It really depends on how much money you want to place on the position.

[notmisa]

Thank you guys for the insight and resources!! I wish I would’ve looked into paper trading options before switching over and fucking up my portfolio lmao. In regards to the straddle vs strangle - I wonder if straddle is better simply because its a lower premium and the underlying has to move for you to make a profit anyway. Thanks again guys.

[Kryptek]

straddle has higher premium not lower.

If you meant strangle, not necessarily. It comes down to risk tolerance, the wider the distance the more risk but lower premiums. The distance can be interpreted as the risk in the trade, so it’s entirely up to each individual.

It may seem better to do a straddle because it’s easier to be in profit, however, you need to account for the range before breakeven so that risk will always exist even though the diagram is a perfect V shape.

[Kryptek]

To demonstrate and also as caution, if you look at this trade that is a straddle on AFRM 44.5c/44.5p 3/25/22, currently $44.7, you can see that to the breakeven price is ~42.33/~46.65. Doing this straddle you’d be paying 2.16, which is the highest at the money straddle. For these types of strategies you definitely should check your breakeven before you enter the trade. For single options or spreads it’s easier to gauge the profitability without analyzing.

[rexxxar]

I’d like to add that the breakeven prices are for the Date of OpEx.
It’s best to use OptionStrat so you can play with the Volatility slider, before jumping in.

I believe Kryptek is showing the TradeStation Options analysis Ui.
You will also find good graphs in WeBull.
RH has graphs too, of course, but I don’t think they have built-for-you dual legged strats–you’ll have to build your own spreads like (great for more advanced strats, bit slow for day-trades imho).