5 New Strangle & Straddle Option Trade Examples

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Straddle: In tonight's video, we're going to go through all the trades that we made on Thursday, August 20th. Today was. I think a pretty good day. I mean, we got a lot of things on. New trades that I think were really good. Closed out of a bunch of trades with profits. So really couldn't ask for more than that.

Starting off the night, as I told you guys last night, I was going to recap everything that we did here in FXI for the entire month of August. After all had been said and done, we had one last trade that we got out of today and that's a long 38 puts for $50 credit. Save those for today and worked out pretty good because FXI was down earlier this morning, so that helped.

After all is said and done, all the adjustments and movements, we ended up with a $64 profit overall. A scratch on FXI with commissions and everything like that factored into it.

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Now, here's what I can tell you. It's that given that most of our positions, and you can see this is my account statement here inside Thinkorswim, you can see all of the August trades that we've made. The most of our positions, kind of the core positions that we had established later in June and early in July.

You can see we're pretty much centered around the 42, 48 even at some points 46 and 45 strike prices. That's really where we establish these core iron condors or iron butterflies. That entire price range of our entire core position was established in this area.

You can see here, visually on the chart; the stock moved well outside of that range. In fact, it's moved even further outside that range today. Tested our lower boundaries in a big way as the market progressed through the month of August.

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Now what helped us out in our case was these adjustments right here. In the August side, we had a bunch of vertical spreads that we made adjustments to, took in all of these additional credits. Again, you can see this closing and opening, closing and opening, just rolling these contracts closer.

Taking in a bigger credit each and every time that we did so. This, for me, is where we made our money back. This was the key to winning in the month of August and losing in the month of August for FXI. I wanted to go over that with you guys so you guys can see exactly what we did.

Again, after all was said and done, we ended up with this $64 profit overall, again not including commissions. With OIH, we ended up closing out a couple of our vertical credit spreads today on the market move down. OIH, our September 34/35 call spread. We bought back for $7 debit so a nice $80 profit.

Same thing with EWW, we bought back our 58/59 call spread, practically worthless at a $3 debit, again a nice $80 profit. With both of these, they were working orders that we had to work in the market, we just didn't get filled until today. Probably because the markets were a little bit more active today.

Things like EWW and OIH are going to be a little bit more active as the overall market's heading lower. That probably helped get easier and quicker fills. It doesn't seem like it's loading up. You'll probably get the picture; it's just that the market continues to move down, so that helped us out.

With Apple, we were able to magically somehow buy back our Apple strangle today. This was an automatic working order. We had put in the automatic working order at about a 50% of potential profit for Apple. Let it run with us strangle as we do. It got us out at a nice $78 profit.

I think what helped in the case of Apple is that implied volatility has dropped even though stocks have been a little bit crazy. As you can see, implied volatility, it's gone down just a little bit. The stock's been kind of all over the map, but as we've gotten here closer to expiration, that's helped out in the decay of these options for Apple.

Again, that was a nice little profit in Apple. As far as new opening trades, we had two new opening trades today. One in DE which is John Deere, one in HPQ. Both of them were straddle type trades. The strangle in HPQ was very, very tight and narrow; it was the 27.5 and 27 put.

It was very, very tight over the market and the reason that we did that, in that case, was that implied volatility was high, but we just want to be as neutral as possible. Here's John Deere, you can see $90 stock implied volatility in the 100th percentile. With where we have the strategy right now, looks like after hours the stock is trading just a little bit lower here.

It looks like it should be a nice big profitable trade as soon as the market opens tomorrow. With HPQ, I think they announce tomorrow before the market opens. Again, implied volatility high in HPQ, which helped out. The stock was trading at the close of the day, around 27.35 so we wanted to be as neutral as possible.

Sold the 27.5 calls and the 27 puts. Again, trying to get that midpoint right around 27.35 or so. Again, you can see implied volatility high in the 100th percentile. You have to go into these trades as aggressive as you possibly can. Selling as much premium as possible. Here's our trade in HPQ again.

The stock is centered right in the middle of our strategy. Our break even points are a little bit wider than the expected move, so we'll see what happens tomorrow when they announce earnings. A couple new portfolio and position trades that we did today.

We sold some strangles and straddled out around the market in FXI, EWW, and OIH. OIH, this one is a very easy one. We did our straddle right at the money, the 30 calls and 30 puts for a nice big credit of $344. With FXI and EWW, we did the strangle, and we did them a little bit further out of the money on each end.

Here's OIH, just to give you guys an idea of what we're trying to do here. You can see as soon as this loads up. Let me just load up some of the actual pricing here as well so that it loads up at the same time. You can see implied volatility has gone crazy in OIH. Remember, we just closed out of a position today that we were playing bearish.

Now, we're going to get back to a little bit more neutral stance and getting to more of a neutral trade that's just pure volatility. Again, in OIH, we went all the way out to the October options. Sold the right at the money straddle. We didn't mess around here. We did things right at the money around 30, when it was trading today and tried to be real, really aggressive with this trade.

In EWW today. I think that's the other one that we did. Yeah, EWW today. We did things a little bit different. We took all our position in EWW earlier in the morning, again that call spread option above the market, where the stock was trading higher. What we tried to do is again do something a little bit wider in EWW.

Give ourselves a little bit more room for the market to move. In this case, we skewed our strangle just a little bit lower to the put side. You can see, the stock closed today around 52.36, and we did a call option that was a little bit closer on the top side, the 55 calls. Then on the bottom side, sold out the 48 puts.

Now, the reason that we did this, again, is just to give ourselves a little bit more room in case this market starts to move down. Open and gapped lower today. We want to respect this move and assume that maybe it might continue to move lower. You can notice that with EWW, implied volatility still high.

We didn't want to do something aggressive, just yet in EWW. We can probably add to this position later on if we want to. Then the final one that we did as far as strangles was in FXI. Just a regular old strangle around the market. Implied volatility is high enough at the 64th percentile.

Just starting to build this new portfolio for FXI heading out into the next contract month. Try to do something there as well. The final trade that we did today was a nice big trade in XRT, so we're going to play the retail sector a little bit bearish here. We need a couple of bearish positions in our portfolio now that we're starting to unwind a lot of August.

So we sold the 98/99 call spread for $0.22. Took in a really good premium that matches exactly what the market is, as far as risk. You can see, we're trying to do things a little bit bearish. We're respecting the fact that this market is come full circle and is starting to move lower. Then nice pop in implied volatility today gave us that opportunity.

As far as where we sold our XRT position, it was right at the 22% probability of being on the money level. It's probably a little bit lower because the market moved down today. You can see that we sold options right out here. About an 80% chance of success on this trade from where we entered it.

It's looking a little bit better right now because the markets sold off in the latter half of the day. Lots of activity, lots of volumes, and open interest that's probably a lot of option off of members here trading this, which is great. Hopefully, this should be a good trade and a good addition to our portfolio overall.

That pretty much ends it and wraps it up for today. Again, really good day. Like that we got a new trades in. A lot of earnings trades. A lot of position trades for the next couple months. We'll keep this up as implied volatility starts to rise, we'll keep hammering away at these new positions and taking whatever we can get.

As always if you guys have any questions at all, please let me know. Ask them right below in the comments section and until next time, happy trading.

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.