Options Trading Strategies Explained: THE STRANGLE (ThinkOrSwim Demo Included!)
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- เผยแพร่เมื่อ 30 ก.ย. 2024
- The Strangle is my personal favorite options trading strategy. It gives you a high probability of making a profit and allows you to make money from a stock simply going sideways! In this video, I will walk you through a detailed example in my ThinkOrSwim trading platform to help illustrate and explain exactly what this strategy is, how it works, and when you should use it!
My Video Explaining Implied Volatility: • IMPLIED VOLATILITY: Th...
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Strangles are my favorite options trading strategy because they give you a high probability of profit, and they are also very easy to adjust and manage! Happy to answer any and all questions!
on a covered strangle, would you still look at a 50% profit? Thanks.
I probably would unless I was very interested in potentially picking up another 100 shares if I got assigned on the short put side. Otherwise if you hold the trade to expiration, you'll obviously give the stock a lot more time to possibly move against you. And in our current bear market, I would be extra cautious about my short puts. But this is just my personal preference. It's definitely not wrong to shoot for larger profits either...it just comes with more risk.
Just a comment to improve visual on chart tab display, at the top menu click on the gear icon next to the flask. From there click on tab labeled Time Axis and click on the expansion area. Select the number 10. This will give you a little clear space on the right vertical side of the chart.. You might also consider dragging the vertical prices listed on the right, up or down to square up the chart display giving it a square aspect ratio. You could also then use the draw tool ($ price level) to show your 37 and 100 strike respectively on the visual chart. Just a suggestion and you are doing a nice job of walking through the setup steps, one by one.
Great video, mate, but you got the statistic wrong.
10:27
The probability of the strangle expiring out of the money is actually about 68%.
To find the probably of multiple events all occurring, you would need to multiply each probability.
1 - 0.24 = 0.74
1 - 0.08 = 0.92
0.74 * 0.08 = 0.68 or 68%
If this is confusing, think of the probably of getting all heads or all tails when you flip a coin. The times you flip a coin, the less likely it is that all your result is either all tails or all heads.
0.5 * 0.5 = 0.25
0.25 * 0.5 = 0.125
0.125 * 0.5 = 0.0625
...
Keep up the good works! I actually follow you here from SkillShare.
I don’t believe your method is entirely correct...at least for this particular application. See my third reply to understand why. The probabilities you see in TOS are based off a normal distribution curve. Therefore, to find the probability of an event occurring in between two points on the curve, you do the following...
1) Find the probabilities of an event occurring outside each of the two points (so 8% and 26% respectively from the video).
2) Add those two probabilities together (so 34%) because this gives you the total probability of an event happening outside both of those points.
3) Subtract the total probability from 100%. This gives you the probability of the inverse event (i.e. the probability of an event occurring in between the two points).
You can take a look at this video here for an example: th-cam.com/video/gzRcgEGJ0Pk/w-d-xo.html
The guy does use a slightly different approach for step (3), but it will still give you the same answer in the end.
I actually did a little more digging, and I believe that simply multiplying the probabilities together like you have done is not entirely correct. The reason is because the events involved in this video are not independent (this is a statistical term meaning the outcome of one event does NOT change the probability of the other event occurring). But the events in this video are *dependent*. If the two events are...
1) The stock being below $100
2) The stock being above $37
Then knowing the outcome of one of these events totally changes the probability of the other. If, for example, we know that the stock ended up above $100, then the probability it also ended up above $37 is 100%. Conversely, if the stock fell below $37, then the probability it also fell below $100 is 100%.
You can take a look at this article to see more examples and the mathematical formula you should use when dealing with *dependent* events...
www.statisticshowto.com/probability-and-statistics/probability-main-index/probability-of-a-and-b/
Hope this all made sense and always happy to answer any questions you may have! And thanks so much for also following me on Skillshare!
I need some help with some Puts I sold a few weeks ago for FB June 17/2022 $200 strike….it’s getting close back to $200 and now that I’ve seen your video I’m wondering is there a way to save this trade if it gets close to 200 shorty based on your strategy to short the stock?
Hi Sam! If FB does rise above $200 or gets very close, then technically you can short the stock if it falls back below. However, I would not recommend doing so if you don't have adequate practice with this method beforehand. I always suggest that people attempt this defense methodology in a paper money account first because it can be a bit tricky to execute it properly. So alternative methods of defense could be rolling the put out to the July cycle and lower the strike simultaneously...you could also simply buy back the put to cut losses now that you've already made back much of those losses..or you could also sell a naked call or a call credit spread against the put to collect additional credit and reduce your delta risk.
@@scottreesetradinginvesting7936 Thanks for the quick response, I did sell a Call for the same date at $212.50 strike to collect more premium. I think I will wait to see what happens, this was already a rolled position as the date was earlier in May and then everything went down heavy. I wish I saw your video earlier so that I possibly could have saved time and saved me from lots of time wasting. I do need to watch your other video again to get a clear understanding of shorting.
How much money would be tied up for a month to make $460. Seems like a long time to have funds unusable for a small return. Unless I am wrong but wouldnt your broker hold the funds for both positions until expiration? I am new to options
Really clear video Scott. Great explanation. Many thanks. You have a new subscriber.
Glad you enjoyed the video John! And thanks so much for the sub! Really appreciate it :)
Can you share the IvRank study? is that a available in TOS?
Yes it is available in TOS, except you will have to manually add it by creating a new charting study. I have a video that will show you exactly how to do that! Check it out here:
th-cam.com/video/ZYmH1aRtzhQ/w-d-xo.html
@@scottreesetradinginvesting7936 thank you so much!
@@drazda1 You’re welcome! :)
Great video. Your explanations are very well structured. Do you happen to have a video on how to manage a strangle trade that goes against you (let's say you sell a strangle at 60 dte, hoping to take 50% profits after 30 dte but it moves close to one of your short strikes)? Thank you for the content.
Thanks for watching, Tami! I saw that you found my other video on the 3 different ways to manage strangles. Did that video answer your questions?
Wow! It really takes fortitude to trade options on a meme stock, but you're correct for doing so since the I.V. is way up there which means juicier profit potential and your trade looked really good! Looking at the call side of options chain straddle, I couldn't help notice the large amounts of open interest. Guessing that's b/c fund managers who shorted SPCE when the price was lower are buying large quantities of call options to protect their downside (backsides) and well as WSB kids YOLO'ing their RH investment accounts.
Large amounts of open interest could be caused by a variety of reasons, certainly inclusive of the ones you mentioned. But in general, options that are near at-the-money are the ones traded the most.