Title says it all: is it advice-able to set a stop loss on a short strangle?
I see short strangles as a nice way to collet premium on low volatility environments. My plan is to trade 1 or 2 short strangles per week on mid to low IV stocks to further increase my cash flow.
Of course, there is always the risk of a sudden increase in IV or a sharp underlying move and, as losses are unlimited, this can hurt badly.
As such, I was considering the idea of setting maybe a SL worth 50% of the credit received (i.e. if max profit can be 150$, setting a SL of -75$). I have done some initial research and, if done on low vol stocks and environment, short strangles do not typically have sharp moves or volatility as they are typically delta neutral structures.
Is there any short strangle enjoyer that uses SL here?
Posted by Comfortable-Entry341
2 Comments
If you use a stop loss you will lose all your money after a few trades, no matter what your strategy . Worse yet doing it every week, you will lose the rest.
If you had a 16 delta strangle on Spy (say from July15) you would have closed out the morning of Aug 5 , with a 1500-2k loss. If you had waited 10 days you could have closed for a 200-300 profit.
The Strangle is a good idea, or even Selling Puts, your implenmentation sucks.
Try a covered short strangle.
I use it while holding 150 shares.
Both sides around 15-20 delta.
Usually I just let assignment happen.
Works well in a flat to slightly up market.
u/esinvests has some good rules and management