Markets have had some volatility creep in recent weeks, so I decided to scale in to short volatility with selling options to generate theta in my Tastyworks margin account. I have not been selling strangles in the past few months due to the market climbing and having low volatility.
I used EEM which is the Emerging Markets etf to place a trade using the short strangle strategy, which is a short call and short put to generate theta between the two strikes. This is neutral strategy.
As long as the price remains between $36 and $47 I will be profitable.
The reason I chose the EEM etf is because implied volatility rank was relatively high, and a short strangle is short volatility.
I sold the Sept 19 -47 call strike and -37 put strike for a credit of .80 cents which at the time of placement was 131 days until expiration.
I plan on making between .35 cents and .40cents (approximately 50% of max profit) before exiting this trade. I have a GTC (good til cancelled) order placed for .40 cents which would yield me $40 in profit.
I will manage this trade by rolling in the strikes if tested.
I will exit at a loss of 2x credit received. If the trade becomes $1.60 then I will exit. Because the risk on this trade is undefined, I must have a mental stop loss in place.
Update – Trade Closed for $28 profit.
This EEM strangle was closed on 061019 for a $28 profit. I had a GTC order in and it filled.
Here is a screenshot of an EEM monthly chart with the range that the price must stay in for me to be profitable.
Here is a risk profile of the trade on 06-03-19
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