Better Education

Leads to Better Trades

Welcome to Safe Option Strategies presentation of:

Adjusting
Straddles and Strangles
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

Adjusting Straddles and Strangles

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 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

Review of The Straddle/Strangle
• Debit Spread
• Buy to Open the Trade
• Long Call is Placed At or Just Out of the Money and Typically 90 Days or Longer to
Expiration.
• Long Put is Placed at the Same Strike Price (Straddle) or at a Lower Strike Price (Strangle)
in the Same Month of Expiration.
• There is Not a Primary and Secondary Option in This Trade Unless There is a Very Bullish
or Very Bearish Expectation.
• Cost Basis or Net Debit of the Trade is the Debit of the Long Call Plus the Debit of the Long
Put.
• Max Risk = Cost Basis
• Max Reward = Unlimited Minus the Cost Basis to the Bullish Side; The Long Put Strike
Price Minus the Cost Basis to the Bearish Side.
• Good Target ROI is 20-30%
• Good Target Time in the Trade is Under 8 weeks. Less Time is Better Due to Time Decay.
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

Adjustment for Stagnant Trend

• Open the Trade Expecting
Strong Movement
• Stock price moves into a
stagnant trend.
• We should pick a side.
LC LP • Sell to close the option we
SP don’t pick.
• Add short option to the side we
pick, at a earlier expiration date
creating a calendar spread.
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

SP LC LP

SP
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

Adjustment for Stagnant Trend

• Open the Trade Expecting
Strong Movement
• Stock price moves into a
stagnant trend.
SC LC • We could keep both sides.
• Sell to open short calls and
SP LP manage the call side as a
calendar spread.
• Sell to open short puts and
manage the put side as a
calendar spread.
• Manage each side as a
completely separate trade.
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

SC LC

SP
LP
 Better Education Leads to
Better Trades

Adjusting Straddles and Strangles

Summary
1. When the stock in a straddle or strangle moves stagnant, we can:
1. Pick one side of the trade and add short options creating a calendar spread.
2. Sell to close the other side of the trade for as little loss a possible.
3. Keep both long options and short respective options against them creating
calendar spreads for both sides of the trade.
4. Treat the put side of the trade and the call side of the trade as two
completely different trades moving forward (each should now have its own
defined exit strategy.
2. Exercise patience in straddle and strangle trades. Give the stock a
chance to pick a direction.
3. Always keep track of our cost basis and how it changes as we roll
the option.