S.O.S. - Short Option Strangles - Better to be Safe than Sorry
- Written by Carley Garner
Better Safe than Sorry
Going into the notoriously volatile period before option expiration with short option positions isn’t always wise. Even options that seem to be so far out of the money that they couldn’t possibly end up hurting you should be offset. For example, in this case the odds of the S&P rallying 25 points in week seem to be slim, however, you should never underestimate the market. In attempt to squeeze another $250 out of an already extremely successful trade you could end up in the middle of a small disaster. Remember, being greedy goes against the premise of this strategy and could easily turn a winning trade into a loser.
As with any trading strategy or method, losing trades are unavoidable. Thus, it is important to point out that there is substantial risk involved. Many option sellers fall victim to greed. Failure to cut losses short can put traders at the mercy of the market. likewise failure to offset profitable options with little value left in them is a recipe for disaster in the long run. Although the odds of a profitable trade are in the favor of the option seller relative to the buyer, instinct and the ability to make proper adjustments are crucial to making S.O.S.’s profitable.
**There is substantial loss in trading options and futures.