Why I sell strangles

If you are not familiar with an options strangle, here is a visual representation shown in the Tastyworks platform.

strangle

When you sell a strangle, you are selling a naked put and a naked call. The risk is considered “undefined,” which is why I only use ETFs for my trading.

So why is this the only strategy I use?

  • I have found it offers the most edge. The edge I want to leverage is the premise that, on average, options are overpriced relative to the actual movement of the underlying stock. This is also reflected as “implied volatility.” For me, selling strangles is the most pure way to take advantage of that edge. While iron condors are a great learning strategy, I find you that are also giving away most of your edge by buying further out of the money options.
  •  They are the most flexible to adjust. A big part of my trading plan is adjusting trades that are starting to lose, by executing “rolls.” Strangles are very nimble in that you can almost always roll one of the sides in, or forward in time.
  • They are not complicated.  Over the seven years that I have been trading options, I have learned from a wide variety of people. The folks that are the most successful, and are able to generate a consistent, impressive income purely through trading tend to have one thing in common: They have one simple strategy and they focus on continuing to tweak and perfect that strategy. A lot of folks believe you should be trading a wide variety of strategies, like iron flys, butterflies, calendar spreads, ratio spreads, etc. For me personally, that just results in an unmanageable rat’s nest of a portfolio.

 

While a strangle may not be your strategy of choice, it is definitely mine. You may be more comfortable just selling puts, or credit spreads. The important thing is to figure out what is the best fit for you and focus on perfecting it so that you stack the deck in your favor.

As always, I’m sharing my experience and am not making any trade recommendations. Happy trading!

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1 comment on “Why I sell strangles

  1. I agree with your above thoughts and have some a couple specific thoughts to add about Strangles in particular:

    While I have sold mostly naked puts (20 delta) during the time that I have been trading options, I was won over to the idea of doing strangles in the past six months. Doing a strangle at 10 deltas really increases the odds of a winning trade in my opinion, since one side is always a winner ( a trader cannot lose on both sides of a strangle 🙂 It is as if we are increasing the number of patrons at our casino, or customers buying our insurance two-fold.

    Secondly, we take a safer bet with our market agnosticism. Further OTM, and leaving the directional bias for the speculators.

    Like

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