Comments: More defense as this underlying continues to implode. Total credits collected of 16.99 (See Post Below) plus the 2.51 here equals 19.50. The resulting inversion is, unfortunately, 22 strikes wide -- 2.50 greater than the total of credits I've collected. This means that I won't be able to scratch it out during this cycle regardless of what happens with price, but will have to roll out for duration if I want to attempt to do that until I've collected more credits than the width of the inversion. Alternatively, I can consider taking the loss and moving on, but the best case loss scenario at the moment is a 2.50 loss (assuming price moves back between the strikes).
This trade is a great source of learning. I reviewed it twice but still there are some unknown. I have couple questions if you don't mind: 1. Whit this much of price falling against you, your short put being ITM, how much of loss are you having here? 2. Is your plan to get out of this trade in Break even or you are still looking for profit? 3. what do you mean by best case loss scenario of 2.50? $250 per contract? I think you have collected a lot of credit here. 4. managing your position, are you looking at a specific software like Option Net Explorer or not?
Thank you so much for your time. Masoud
NaughtyPines
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@masoudesigner, (1) My current break even is 80.64 relative to where the underlying finished on Friday at 71.52, so I'm underwater by 9.00 ($900) or so if the call and additional put expire worthless and I get assigned on the deep ITM put. The alternative way to look at it is that my scratch point is 22.58 and the current setup is being marked at around 36.59, so if I went ahead and just closed it now, I'd be looking at a 14.01 ($1400) realized loss. (I would note that I added a short put to strangle the deep ITM short put, which at this point is very high delta, and so is functionally stock). (2) I'm looking to scratch this out. (3) Where you invert a short strangle to a width greater than the amount of credit you've currently collected, your best case scenario is the width of the inversion minus total credits collected, which will result in a loss, assuming price moves back between your short strikes (which is what you generally want to happen with an inverted short strangle). You can naturally roll out for additional credit if this happens, giving you shot at not losing money on the setup, but I usually just take the loss in that case, particularly if it's way smaller than what I was originally looking at (such as here, where a 2.50 loss would be far better than a 14.00 one). (5) I'm old school options table trader, so I trade based on delta values of options.
NaughtyPines
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@NaughtyPines, Here's the short put I added to strangle the deep ITM, high delta short put, effectively strangling it as I would strangle a stock position.
@NaughtyPines, I would note that I generally don't do this (short strangle a deep ITM put) unless I'm not comfortable with rolling down the short call further due to the width of the inversion and/or want to rapidify my cost basis reduction so that my BE is closer to current price than this is.
masoudesigner
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@NaughtyPines, Thank you So much for your answers. Learning alot from your posts. Appreciate
1. Whit this much of price falling against you, your short put being ITM, how much of loss are you having here?
2. Is your plan to get out of this trade in Break even or you are still looking for profit?
3. what do you mean by best case loss scenario of 2.50? $250 per contract? I think you have collected a lot of credit here.
4. managing your position, are you looking at a specific software like Option Net Explorer or not?
Thank you so much for your time.
Masoud