Scottrade Options?
Most of the rules are set by the SEC and the options markets, and there is a standard brochure sent by law to all options traders, so it's not entirely Scottrade's fault if they are confusing. In general, any option you can buy you can sell. I think their statement about not selling options would only apply to illiquid options. Or you could be reading some rule about the opposite strategy from yours, where you sell (or write) the option first, and then hope to close it at a lower price. If they really have a blanket prohibition on selling all long options positions that would be bizarre, as it would shut down most of their business in options. As for forced exercise, in the situation you describe of a long put position you don't have any worry if you sell the put before it expires. Look in the section on option settlement and you'll see they settle after the market closes on expiration day (on Saturday, as I recall). The same applies to a long call. If you're on the other side--selling an option--there is a theoretical possibility of forced exercise at any time, but it's pretty rare. Hope this helps.
How do I perform a strangle or straddle combination in options correctly, without one of the legs kicking out as the price moves?
Without knowing more details like what strikes your options were and how much you paid for them, I won't be able to give a precise answer.But based on when you asked the question, Aug 6 was the day after earnings came out. Before an earnings announcement, the implied volatility of a extremely volatile stock like TSLA becomes sky high. This is the market's way of anticipating a sharp move after earnings. My guess is the breakeven price on the ATM straddle was on the order of a 10-15% move. So in short, you bought some extremely expensive options and even the big move wasn't enough to compensate you.
Is long strangle strategy useful/safe in nifty option trading?
Long Strangle will yield good returns only when there is high volatility in the markets. Usually people do Long Strangle with OTM options. Let’s a consider a 5% Nifty option strangle.If Nifty is at 10,000 we buy 10500 call option and 9500 put option. If market moves beyond this range, we can make profit or else we end up losing all.I have tested this strategy for last 12 years. Initiate Long strangle at the start of the expiry and exit at the end of the expiry. As you can see in the below chart, period like 2008 October Lehman collapse, Brexit, and few other period resulted in huge profits. But what about other days? Consistent losses!You eat great meals once in a while but for the rest of the days, you starve to death. That’s how long strangle is. In order to make that one big profit, you would be ended up losing consistently.The total profits, sorry the total loss was -1500 Nifty points. So you cannot just trade Nifty Long strangle, its not an edge. May be you can trade long strangle on specific event days and avoid trading on other days.Some people just sell naked options and continue to make consistent returns every month but the one trade that goes against them will not only wipe out their profits, it will create a big dent in their account. Short strangle is one such option selling strategy, at least you would have end up making 1500 points for 11 years, which is around 130 points per year, that is just 10% to 12% per year. But again, imagine losing 40% to 50% of your capital in just one trade.So doing Nifty Long strangle strategy every expiry is not a profitable method.Source: SquareOff Historical data
Will this options strategy work?
I'm trying to figure out what is wrong with the following idea, since every other strategy I've come up with has serious issues. Okay, so I sell deep in the money puts and deep in the money calls at the same expiration. I mean real deep, like god hates me if either option goes unexercised deep. I collect the premiums, the ITM puts are exercised, I am assigned the stock at a loss. The ITM calls are exercised, I am forced to sell at even more loss. However, the premiums collected outstrip this loss. The loss and gain are known at the time of the sale of the options (outside of 'god hates me' market movements). So for example, you sell the 170 put strike of SPY for 12.77 and the 140 call strike for 18.87. The current underlying is 159. Expiration is in 5 months. Premium collected for 1 contract of each is 3164 dollars. At expiration you spend 17,000 to buy SPY and then sell it for 14,000, for a loss of 3k. That's only .5% of gain compared to loss, but because it's certain (and this trade can be constructed by preventing further loss by buying the really cheap matching strike buy and calls), then it's not a matter of %, but simply how many you want to, or can manage to do under your brokerage's leverage rules. Example 2, expiration 3 weeks from today, again the SPY. Sell 168 Puts, sell 149 calls, premium per contract is 1926 dollars, after buying protection matching calls and puts. At expiration, you lose 1900 dollars, a garaunteed net gain of 26 dollars. This time, well over 1%, and only 3 weeks to execute. God I'm going to feel dumb when someone shoots this down, but I'm a newb trader so that's okay.
What is a strangle strategy?
Strangle is a volatility trading strategy. It involves buying or selling a pair of a call and a put option which are slightly Out of The Money (OTM). Assuming current price (also called spot price) of an asset is 50. A trader has a view that the price of asset will significantly rise or fall. Thus he could buy a call option at a strike price of 55 and buy a put option at a strike price of 45. Suppose that the premium paid for both options was 5 each, so total 10. Now the trader will hope for either of the outcomes:First, the price of the asset rises above 65 so that his call option makes him enough money. For instance, if price rises to 70, the trader will exercise his call option with the strike of 55. This will earn him 15 (70-55). Subtracting the total premium paid (10), he still makes 5. The put option expires worthless.Second, the price of the asset falls below 35 so that his put option makes him enough money. For instance, if price falls to 30, the trader will exercise his put option with a strike of 45. This will earn him 15 (45-30). Subtracting the total premium paid (10), he still makes 5. The call option expires worthless.Thus, so long as the price of underlying asset moves enough on either sides, the strangle buyer makes money. If the asset price remains range bound and doesn't move enough in either direction (stay between 45 and 55 in our example) both options expire worthless and buyer of strangle has to bear losses which are limited to total premium paid (10 in our example). Similarly, a trader having a view that asset price will remain range bound and will not move much on either side might sell OTM call and a put and hope prices stay in the band (between 45 and 55 in our example). This will result in both options expiring worthless and seller of strangle would keep total premium of 10. Thus, for a strangle buyer, profit is potentially unlimited and losses are restricted to total premium paid. For a strangle seller it is exactly opposite, profits are restricted to maximum of total premium received, but losses are potentially unlimited.One would think, why not buy both options with a strike of 50 so that chances of either of them getting in the money would be higher? That's true but such At The Money (ATM) options attract higher premiums making the strategy more costly. Such strategy involving simultaneous buying or selling of ATM call and put option is called straddle.
When is the best time to use either a straddle or strangle options strategy for an earnings play?
straddle is something , you can play in a range bound market or specially in the beginning of the contract considering there wont be much of the movement is expected on any side ,you need a good command over technical to achieve it also , you need to be aware of fundamental events prior to make a commitment in this kind of strategy .now comes strangle, yes you got it right , one week prior to that well again you need to have good command over technical and fundamental events that can decide the outcome of the strangle , let me tell you there is theorem which i made ,speculative action =information action =reactionnot only entry is important but also exit is equally important , sometimes speculative action already played its part before a week even . i wish i could explain you everything here like money management and risk reward will be associate with options , it is very easy to read something about these strategy ,people often try as well , but to get best out of these you need special skills which can only develop by practice and more practice with the alignment of right knowledge, all the best for more information follow us on fb marketkhiladi and you can also visit our website marketkhiladi..in