
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioLeveraging the analyze tabCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
Long callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBrokersCandlestick patternsChart patternsDividendsEconomic indicatorsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend trading
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a botAutomation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginFree Trial
ResourcesPodcast

Adjusting Short Straddles for $540 Profit (EWZ Case Study)

In this show we'll focus on our most recent case study in EWZ, a trade in which we turned a losing set of straddles into a $540 winner with a little patience and some mechanical adjusting.
Adjusting Short Straddles for $540 Profit (EWZ Case Study)
Kirk Du Plessis
Jan 16, 2019

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. While position sizing still needs to be managed appropriately, the fact remains that properly adjusting short straddles and rolling for duration and additional premium can help turn so-called losers into profitable positions.

Trade Overview:

  • We entered into our first position in EWZ on September 18, 2018 - $33 straddle.
  • We 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 back up.
  • IV was very high, over the 90th percentile.
  • We collected $390 initial credit at October expiration for the first set of straddles sold.
  • We added another laddered entry set for EWZ, selling the $33 straddles for November expiration.
  • As a general rule, as we get closer to expiration, we don't want to enter new trades inside 20 days.
  • On September 24, EWZ rallied up to $34 and then fell back down to $33.
  • IV was still high at this point, so we decided to spread the trade out over two contract months. So, we entered another set of $33 November straddles, collecting an additional $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.
  • We continued to slowly enter laddered positions.
  • EWZ started to move higher to around $35, and IV was still high. 
  • On October 2, we entered another set of laddered entries in EWZ, selling the $35 straddles. 
  • We collected $5.33 for those contracts.

Summary:

  • 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. 
  • EWZ 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 roll for a credit, role for a credit.
  • On October 8, we rolled our original $33 straddles to November using a double-diagonal order. 
  • We 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 initially rolled contracts out from October to November.
  • We 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, you can wait it out until the market comes back around.
  • Not every rally up or every drop lower is going to stay there forever.

Goals:

  1. Reduce risk
  2. Turn the position around

Adjustments:

  • On November 2, we rolled straddles to the next expiration month from November out to December. 
  • We 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.
  • On the $33 straddles, we collected a blended credit of $5.81 on average per contract, moving the break-even point out to $38.81.
  • On the $35 straddles, we collected a total of $6.21, moving the break-even point out to $41.21.
  • Because of the premium collected, the break-even points had 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.
  • We 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 $5.81s 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.

Conclusion:

  • 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 the duration, you can turn the trade into a winner.
  • Using this smart, mechanical, systematic approach, you can make a profit.
Case Studies
Expiration
Adjustments

4.8 (1.1k Ratings)
Subscribe Now

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547