Introduction To Options Strangles

This is the first post on selling options Strangles, and will introduce the strategy structure.  In subsequent posts, we will look at the back test results for short Strangles on the SPX and RUT.

A short Strangle is essentially a short iron condor, but without the long strikes.  Since the long strikes are missing, the strategy has undefined risk.  Let's look at some examples, based on the RUT options closing prices on July 2, 2015.  On this date, the August options were expiring in 48 days (48 DTE), which is close to our typical trading window.  The put and call strikes below are available to construct our Strangles.  In these images, you can see many of the important attributes for each option, including delta, price, and probabilities.

RUT Put Options Chain - July 2nd, 2015
(click to enlarge)
RUT Call Options Chain - July 2nd, 2015
(click to enlarge)

Since the future back test results posts will look at Strangles at 4, 6, and 8 delta, I'll use these strikes in my examples below.  I will show examples of Strangles at each of these deltas, as well as Iron Condors at these deltas.  Notice the absence of long strikes in the Strangles, as well as the theta, credit, and risk.  Here we go...

RUT 4 Delta Strangle
RUT 4 Delta Strangle - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $3,708
  • Delta: 0.02952
  • Theta: 17.51878
  • Credit Received: $335
  • Risk: undefined

RUT 4 Delta Iron Condor
RUT 4 Delta Iron Condor - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $1,123
  • Delta: -1.08191
  • Theta: 4.38734
  • Credit Received: $110
  • Risk: $1,890

RUT 6 Delta Strangle
RUT 6 Delta Strangle - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $4,251
  • Delta: -0.48099
  • Theta: 22.50901
  • Credit Received: $490
  • Risk: undefined

RUT 6 Delta Iron Condor
RUT 6 Delta Iron Condor - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $1,184
  • Delta: -1.80523
  • Theta: 5.16398
  • Credit Received: $155
  • Risk: $1,845

RUT 8 Delta Strangle
RUT 8 Delta Strangle - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $4,809
  • Delta: -1.48944
  • Theta: 27.56221
  • Credit Received: $675
  • Risk: undefined

RUT 8 Delta Iron Condor
RUT 8 Delta Iron Condor - Aug 2015
(click to enlarge)
  • Portfolio Margin Req: $1,221
  • Delta: -3.20900
  • Theta: 7.27385
  • Credit Received: $247
  • Risk: $1,753

Across the board, we see higher compensation for increased risk.  Since we don't buy longs for Strangles, we have a greater credit received.  In addition, since we don't have long strike in a short Strangle, we have higher theta.  So, in exchange for undefined risk, we receive much higher credits, and much greater theta...we get paid more and the money comes in faster.

With a strangle, we need to be more aggressive at loss management...we can't let these trades get away from us, or we could potentially have huge losses.

In the next post, I will describe the exits that will be backtested, and some trade setup details.


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