OAP 151: Adjusting Short Straddles For $540 Profit (EWZ Case Study)

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All over the internet, you'll hear stories of why short straddles and short strangles should be avoided at all costs. Stories of how trading "undefined" risk positions can blow up your account when the market moves against you quickly. And while position sizing still needs to be managed appropriately, the fact remains that properly adjusting short straddles and rolling for duration and premium can help turn so-called losers into profitable positions. In today's show, we'll focus on our most recent case study in EWZ in which we turned this losing set of straddles into a $540 winner with a little patience and some mechanical adjusting.

Key Points from Today's Show:

  • Entered into our first position in EWS on September 18, 2018 - 33 straddle.
  • Sold the 33 call and 33 put for $3.90 for October expiration.
  • EWZ had been through a down move to a low of $31 and was starting to rally up.
  • IV was very high, over the 90th percentile.
  • Collected $390 initial credit at October expiration for the first set of straddles sold.
  • Added another laddered entry set for EWZ, selling the 33 straddles for November expiration.

*As we get closer to the expiration dates, we don't want to trade inside 20 days as a general rule of thumb.

  • On September 24, saw EWZ rally up to 34 and then fall back down 33.
  • IV was still high at this point, so we decided to spread trade out over two contract months.
  • Entered another set of 33 November straddles, collecting $5.53.

*Trading a little bit further out, we were able to collect a much higher premium for these straddles for October expiration.
*Even if IV is high, we're collecting $5 plus in premium, which gives us an $11 range to still make money by expiration.

  • Continued to enter slow, laddered positions.
  • EWZ started to move higher to around $35, and IV was still high. 
  • On October 2, entered another set of laddered entries in EWZ, selling the $35 straddles. 
  • Collected $5.33 for those contracts.


  • We had three straddles outstanding, three sets of two contracts each, one set in October and two in November.
  • The day after our entry into the 35 set of straddles on October 2, EWZ rallied really strong, really fast. 
  • Jumped over multiple gaps to reach a high of 40. 
  • As a result, IV dropped back down to around the 50th IV ranks. 
  • With the stock trading around $40, and us selling most of our premium at $33 & $35 strike, we were outside of our break-even point on EWZ.
  • At October expiration we could not do anything with the 33 straddles that we had. 

Mitigating the Risk:

  • If you can role for a credit, role for a credit.
  • On October 8, we rolled our original 33 straddles to November using a double-diagonal order. 
  • Took in a total credit of $1.17 on this roll. 

EWZ Rally:

  • During October, EWZ continued to rally and continue to move higher to a peak of $41.50.
  • On November 2, IV was still higher than it was when we originally rolled contracts out from October to November.
  • Rolled these contracts out again from one expiration to the next expiration.
  • If you can control the position size and you know that markets are cyclical if you can roll for a credit and extend your timeline, wait it out until the market becomes what we know it will become, which is cyclical. 
  • Not every rally up or every drop lower is going to stay there forever.

A) Reduce risk
B) Turn the position around


  • On November 2, rolled straddles to the next expiration month out to December. 
  • Used the double diagonal orders and added them in December for higher credits. 
  • The 35-centered straddles of November were rolled out to December for a $88 credit overall. 
  • The 33-centered straddles of November were rolled out to December for a $51 credit each.
  • The 33 straddles collected a blended credit of $5.81 on average per contract, moving the break-even point out to 38.81.
  • The 35 straddles collected a total of $6.21, so the breakeven price is 41.21.
  • Because of the premium collected, the break-even points have been moved much closer to where the stock was trading.

Fall of EWZ:

  • The day after we rolled the contracts, EWZ started to fall.
  • After the initial fall in EWZ, we were able to close our 35 straddles for December and buy them back for $5.25. 
  • Total credits collected was $6.21, so we closed for a profit.
  • Continued to hold the 33 straddles until November 26, when EWZ made a move lower to 37.29.
  • At that point, we were able to exit the 33 straddles for December and bought them back for $4.94.
  • Total credits collected were $5.81 so again, we were able to close for a profit.

*We were left with a $540 profit overall on these two series of short straddles on EWZ.


  • You can still make a profit on a trade that is turning against you, as long as you keep rolling and adjusting. 
  • If you are smart about how you adjust and can extend duration, you can turn the trade into a winner.
  • Using this smart, mechanical, systematical approach you can make a profit.

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Option Trader Q&A w/ Andy

Trader Q&A is our favorite segment of the show because we get to hear from one of our community members and help answer their questions live on the air. Today's question comes from Andy.

I just started my first options trades this week and I'm interested in keeping a trade journal designed for options. Do you have any recommendations for Excel templates that are free, or paid templates, like Trading Journal Spreadsheet?

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Real-Money, LIVE Trading:

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  • COP Short Put (Closing Trade): These single short puts in COP acted as a great hedge for our other bearish bets in oil this month and helped smooth out our returns after we closed them for a nice big profit.
  • TSLA Put Debit Spread (Closing Trade): Although many people thought we were crazy for getting bearish in TSLA this pre-earnings put debit spread trade made us $200 today. After the huge run up from $140 to $260 and getting some technical sell signals, we were pretty sure this stock would pull back.
  • MON Iron Condor (Closing Trade): Following a huge drop in implied volatility we worked hard to close this MON iron condor trade adjusting the order multiple times to fill before the end of the day.
  • IBB Call Debit Spread (Opening Trade): We'll show you how I started searching for a new bullish trade and eventually found a low volatility trade in IBB looking for a move higher to hedge our portfolio.
  • TLT Iron Butterfly (Closing Trade): Following the Brexit vote TLT and bonds traded in a nearly $8 range really quickly - even still the drop in implied volatility helped generate a $330 profit for us.
  • XBI Call Debit Spread (Closing Trade): Got lucky picking the exact bottom for our entry in this call debit spread for the XBI biotech ETF which ultimately was closed for a profit of $165 today on the rally higher.
  • COH Iron Butterfly (Earnings Trade): Shortly after the market open we close out of our COH earnings trade for about a $160 profit, leaving just 1 leg on to expire worthless.
  • EWW Debit Spread (Closing Trade): Using some of the technical analysis signals we discovered in our backtesting research, we were able to make a quick $130 profit on this bearish EWW debit spread trade.
  • IBM Iron Condor (Earnings Trade): Shortly after the market opened you'll follow along with me as we watch volatility drop and liquidity come into the market before closing out the position for $250 profit.
  • SLV Short Straddle (Opening Trade): Using our watch list software we decided to continue to add to our existing SLV short straddle position with a new set of strike prices reflective of the move lower in the ETF recently.

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About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.