Our Favorite Options Trading Strategy - The Strangle 

I want to get your services but do u offer an introductory 1 month trial??

We're so glad to hear we are helping. Keep up the hard work and thanks for the kind words!

We love to hear that, thanks for watching!

We love to hear that, and thank you for watching! =]

We LOVE to hear that! Keep up the hard work and let us know if anything along the way!

Thanks for the kind words and keep up the hard work! You got this!

Thanks so much for the kind words and for watching! =]

Thanks so much for watching, and for the kind words! More to come for sure! If you want to get more in-depth though, check out our website where we have more detailed training for paying members.

We're glad to hear it helped! And it's real cool to see you digging through all our videos. Keep up the hard work!!

@@skyviewtrading yeah I just signed up for the diamond trade account lol. Going through the intro now! Looking to make some trades this week.

Thanks so much for the kind words, and for watching!

We're so glad to hear you are enjoying our content. Thanks for the kind words and for watching!

Glad you like them!

Glad you enjoyed it!

Hello! Thanks for watching! As for your question -- I think you meant to say "SELL" an OTM call/put. In this video we were selling a strangle, which means selling an OTM call and selling an OTM put at the same time. You could sell OTM puts/calls/strangles and close them before they become ITM, however you will likely be down money assuming that the stock made an aggressive move towards your short strike. You could be sitting on a "short term loser" that needs more time decay (days passing) before the P/L starts to look a little bit better for you. Hopefully that makes sense!

Hello! We are referring to this training here! skyviewtrading.com/training/?el=youtubeorganic_training_strangle

Early assignment is hardly a risk at all. More of just a nuisance, if anything. If you are early assigned, you can simply just close the stock (and even simultaneously re-open the option if you want and it's like it never happened, minus assignment fees of course, which nowadays are almost non-existent). Proper position sizing is very important, but more so for fluctuating margin requirements and just managing your risk in general. Early assignment is the least of our worries. Early assignment also typically only happens if there is zero extrinsic value left on the option (which means the short option is deep in-the-money and would act like stock anyways), and also only very close to expiration. But again, if it happens, you can just close the position. It's not like you lose money because of it as the short option would already be acting as stock anyways. With our style of trading, we pretty much would always adjust or close the position long before early assignment would ever be likely to happen, anyways. Hope that helps!

@@skyviewtrading I see. Thank you. So a broker could be very cross with a client immediately following an early assignment, possibly manifesting as a Margin Call, but it is easy to get back into good graces by just quickly closing the long- or short-stock position resulting from the assignment, within the timing requirements of the Margin Call.

Thank you! Glad you enjoyed it.

😏

Thanks so much! Glad you enjoy them! More to come 👍🏼

You nailed it at the end there! The higher the IV, the more inflated the option premiums are compared to what they are actually worth. That typically means we get bigger neutral ranges for our short strikes and/or larger premiums on our trades!

Hey! Thanks for the kind words! To trade options you actually need to be approved for a "margin account." However, don't get the term "margin" confused here. We can only trade options with the amount of cash in our account. So we cannot trade options with "borrowed money." Hopefully that makes sense!

Thanks for watching! And great questions. With strangles (or any short premium trade) you can actually create whatever win rate you want depending on what the deltas of the strikes are that you are selling. For example, selling a .10 delta put has a 90% probability of profit. Managing that trade early, say closing for 50% max gain, will even increase that probability. The key is managing that "outlier risk" as you mentioned in your second question. You need to have a loss threshold in mind, and one that makes sense for the specific ticker you are trading and also the size of your account. That takes some fine-tuning and experience. As for what to look for in the stock -- there's no perfect stock or setup for a strangle. Selling neutral premium like this is more about continuing to generate occurrences, rinsing and repeating the same type of trades in the same type of tickers, more-so than finding the BEST ticker or BEST setup to trade a strangle. Hopefully that makes sense!

with a small account you will want to try using a long or short butterfly strategy or a long or short brokenwing butterfly strategy. Very low cost and no "infinite" risk as strangle has.

In theory yes, but we get paid to take risk! Strangle has more theoretical risk so it typically pays more over time.

What broker would let you do this? Unlimited downside risk.

Looks like ThinkorSwim

Thaks for the kind words! That is the ThinkOrSwim trading platform by TD Ameritrade.

Thanks! We use TastyTrade as our preferred broker!

Hello! You are correct! Iron Condors are the defined-risk version of strangles. Most brokers do not allow you to trade naked premium (strangles) in an IRA account. However, TastyTrade does! You just need a 25k minimum, and the margin requirements are a bit larger compared with a margin account.

Thanks for the feedback! We will look to create some more videos on what-if scenarios!

yes this is a very risky strategy, guess that is why the iron condor helps to limit risk

That's exactly correct -- nice job!

Kind of! The thing with the option market is that volatility is priced into the option. So a more volatile stock would have a wider neutral range to stay within, or might have a larger reward for the "same delta strangle." Said another way, you get paid for the volatility on more volatile stocks in some way. As traders, we find a balance and some personal preferences on what tickers we like to trade strangles on over time. Hope that makes sense!

Good question! It's a math formula from the broker. Back-of-the-envelope math is 1 contract will require about 10-20% of what is required to buy 100 shares of stock.

Hey! I'm a bit confused on what you're asking here -- but it's very likely there will not be much profit on a longer dated option that you exit the same day you enter.

@@skyviewtrading okay thanks that's what I wanted to know

This is one idea to "defend" losses, and there are pros and cons. But keep in mind, your breakeven level is your breakeven AT EXPIRATION... So your method you mentioned would not exactly "save you from a loss"... If the stock touches your breakeven before expiration, there will still be time value on the option, and therefore you will have an unrealized loss. Of course if your breakeven is touched, the stock has a 50/50 chance of going up or down from there and time decay is going to be your friend. But on the other hand, the stock can keep going beyond your breakeven, which would cause losses to compound. We have our own specific criteria we use to defend losses on strangles, which involves adjusting the trade (moving the strikes and/or expirations) to improve the breakeven point to help us turn the loser into a winner, while also "slowing down" losses.

Hello! What you are referring to is a "covered call" where you need +100 shares of stock for every 1 SHORT CALL that you have. That being said, TD and TastyTrade seem to be some of the better trading platforms that cater to option traders like us. Hopefully that makes sense!

@@skyviewtrading Yes, I'm discovering that Fidelity seems to be the most strict when it comes to risk management. I may have to open an account with one of the platforms you mentioned.

It depends on a few factors and each brokerage firm may have their own calculations for determining the margin requirement, although most will be pretty close. It will vary quite a bit between different underlyings. You can see the example at 7:33 in the video. The buying power effect (capital requirement) is -$1,301, with a maximum profit potential of $369. Potential return on capital of 28.4%. Going further out of the money with the strike selection will lower the maximum profit potential, but it will also reduce the capital requirement. Last thing to note with strangles (or any undefined risk spreads), is that margin requirements can (and will) fluctuate during the life of the trade. For this reason, we teach our members implementing this strategy to leave some "cushion" of capital to account for this. Thank you for the comment. Hope that helps!

Keep digging through our channel and maybe even think about joining our membership!

Hello! Selling naked strangles and/or naked puts and calls can certainly sound scary on paper. However, short strangles are probably the number one strategy that successful option sellers use. You can get "wrecked" in many ways while interacting with markets, while someone else using the same strategy is successful. It's more than just what strategy you are using. Entry guidelines and management mechanics are where edge is added or taken away. Hopefully that helps!

Nope! In fact, we very rarely hold until expiration. We're always taking profits off the table early.

Yes, for sure! We actually like to close our winning trades before expiration as well.

@@skyviewtrading some said it is best to sell or buy options during IV High, however, high IV implies shares my dropping so much and its a risk. We couldn't monitor the trades every second.

Hello! Yes the max loss is technically "infinite" on the call side because the stock could go to "infinity." In reality neither of those are going to happen, and as option sellers we can find ways to put real numbers and probabilities on what the loss would look like if X happened in the market. As for the brokers, yes they actually do let you sell calls or strangles or any naked premium trade without owning shares of stock. All brokers that I know of, though you might need to have special trading approval levels in your account. For example, TastyTrade is our preferred broker. The approval process is simple, and we trade a lot of strangles with them without owning shares of stock! Some other popular ones in our community are TD Ameritrade and Interactive Brokers. I hope that helps!

Hello! I'm not too sure what you are asking here. Maybe you can ask your question in a different way?

@@skyviewtrading - CALL BUY and PUT BUY as a strangle combo

Look for a long strangle.

Hello! There is! It's when you buy a strangle on entry. Or, "long strangle." We personally don't like this approach though. When you buy premium on entry like that you have time decay working against you. You're also betting on an outsized directional move. In our opinion, it's tough to find trading consistency and success with that longer term.

Hello! We would only lose money if the price of the stock expires beyond our short strikes (and break-evens specifically) on the expiration date. Hopefully that makes sense!

Yes, there are adjustment mechanics we have in place if the trade goes against us!

Hello! YES! It is of course legal haha. Most reputable brokers will have trading platforms that recognize the trading strategy "strangle." Hopefully that helps!

Hey! We have adjustment mechanics ready to handle that when it comes. We could roll up/down the untested side within the same expiration cycle. We could also roll out the tested side to the next monthly expiration cycle. Both are good and have their place depending on how many days are left until expiration

I am currently using this strategy on Bank of America (BAC). Because the stock price is trading at almost 6 year low ( exclude the pandemic selloff). Holding the underlying stock will be a value investment long term. The 30% drop from the collapse of regional banks seemed to have cost a panic oversell, and have little impacts on larger banks.

Hey! It's not really our style as there are a lot of moving parts and we also like to stay on the naked premium side of things for the most part as they have many advantages over defined-risk. But we're glad to hear it's been working for you!

Hello, thanks for visiting!

Hello! Every trade has a buying power requirement. Let's say for this trade it's $1,000. That's how much the broker wants us to have in our account to control the trade. The trade also has a max profit, let's call that $367. Once we close the trade we will realize the profit or loss of the trade and we will also get our buying power requirement back, which in this example we assumed was $1,000. Hopefully that makes sense!

Please make what!?

Hello! I think what you are missing here is that the Strangle strategy does not require you own shares of stock. It's just a short call and a short put. No shares of stock are involved. Instead, we sell an OTM call and sell an OTM put. It makes a neutral bet, and benefits when the stock stays between the two short strikes. Hopefully that makes sense!

​@@skyviewtrading Thinkorswim does not allow me to short calls without stock, it says illegal -100 shares. What am I missing?

At expiration, you cannot. The stock can't be in more than one place at once. Occasionally, you could temporarily have unrealized losses on both sides if volatility spikes. But at expiration you cannot lose on both sides.

Is there no risk of assignments