Three strangles have 31 days left, will they make a profit?

Posted by TheNightTrader on Tuesday, November 18, 2008 at 11:05 PM

I keep trying to leg out of some of these long strangles with no success :-/. I haven't really lost much either, so that's good I guess. The stocks ride up a little ways and then whiplash back down so I have to buy back the puts to cover myself. Good thing I get cheap commissions :-)! I wouldn't be so aggressive about legging out of these trades if they weren't looking so sorry. My January expiration plays now have 31 days to turn a profit before I have to pull the cord. I think a little look back in history is in order ...
Back in July - September the markets flattened, which just killed my open strangle trades! So what happened? Well I got scared and sold off my real money trades at a hefty loss :-(. But I was curious, so I held a few of my paper trades to see what would happen. I tried legging out and in on one of them at that time, and didn't have any better luck than I am now. But I held on. The longest one I held for exactly 2 months, and I did not lose on any that I held.

  • SLB: I held the Nov 85/110 from Aug-6 to Sep-9, and sold it for 10.2% profit, 73 days before expiration.
  • MER: I held the Jan 14/35 from Jul-29 to Sep-12, and sold it for a 9.1% profit, 126 days before expiration.
  • COF: I held the Dec 40/45 from Jul-18 to Sep-18, and sold it for a 9.8% profit, 92 days before expiration.
The discouraging data I see is that none of those were held as close to expiration as the ones I have now. January expiration is only 59 days out. The good thing is that I've only held the 3 stragglers I have now for about 5 weeks. Oh wow, I just realized I bought all 3 on the same day too ... scary!

The lesson here is time value is your friend! It's costly, but it can save your hide. I always buy at least 4 expiration months out, but in this case I bought them right before Oct expiration, so really I only got 3 months of actual time :-/. Might need to change that rule a bit. A lot can happen in a month though, so lets see what happens! I may still try and leg out again, so keep an eye on my twitter feed.

Recent Activity
11/14
Sold MS Apr 15P to leg out - 2 contracts for $11.80
- Bought back for $11.80
Bought back AMZN Jan 40P - 1 contract for $4.95 (Legged out 11/13 for $4.95)

11/18
Sold FDX Jan 60P to leg out - 1 contract for $4.80
- Bought back for $5.40

Updates
I was going to post an update on exactly where I'm at on each of my open trades, but I keep my trade notes in my trading platform. The problem is that the only computer I have is a 4 year old Mac laptop that won't run the desktop version, so I use the web platform at home. The notes are only stored on the desktop version which is currently on my work PC. I forgot to start drafting a post while still at work so I could share. I could VPN into my work computer, but it's late and I need to get to bed. So maybe next time ...

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