The key to any good strategy is to be consistent and to know when to press the button, but you still need to know where. The Short Straddle, long Delta, is a very consistent, highly profitable strategy where you can benefit by time decay and also price movement.
The reason you would target the High Forecast for this strategy is simple, you will be taking advantage of an increase in the price movement and also the time decay of both legs. Although there is a catch to the Straddle Strategy…
At expiration you will always be In The Money!
Since this is the case, unless you intend on taking the stock long or short, and then hedging with the “Forecast Period: W2” (more on this later), you will need to close this position. Therefore, I recommend a profit target and a time expiration for your trade to exit if profit target is not reached.
The typical profit target for this strategy is 15 to 20 percent of total premium, but of course you can hold throughout the entire week and close the position at EOW (End of Week).
There are alternatives to closing the position as mentioned. Another method you should have in your arsenal isn’t necessarily to roll, but to hedge the existing position.
Hypothetically speaking, if you are approaching expiration and the position hasn’t moved, depending upon the location of price you will be long the stock if you are still short the put contract. If you are still short the put contract and wish to own the stock, you can then hedge using the “Forecast Period: W2” High Forecast in order to specify the location of your short Contract, converting this trade into a Covered Call Strategy.
“>These are only options and serve as a guide! You must evaluate the risk of the trade, and of the entire portfolio of positions to ask yourself whether or not these are viable decisions.
