HOW TO ADJUST A SHORT STRANGLE?
Gone are those days where a short strangle used to expire worthless without any adjustments.
Adjustments are a must when your initial view goes wrong which it will.
Listing down all the ways to adjust a short strangle WITH EXAMPLES below.
1: Rolling up/down:
If you've sold a short strangle and one side premium spikes, you can book the profitable side and roll it up to match the premium of the other side.
eg: If you've sold a 60rs call and a 60rs put. If the 60rs call goes to 100. Then book profits in put and sell a 100 pt put.
This is the most basic way of adjustment.
2: Rolling the losing side:
It's very similar to the above adjustment however, we will consider shifting the losing side instead of profitable side.
eg: If you've sold 50pt call and 50pt put. If the 50pt put spikes up and goes to 120. Sometimes, I wouldn't want to sell a 120 pt call.
Hence, I simply book loss in the put and sell a new put worth 50pts which is farther away from the previous put.