This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Strangle This Trading Range

I'd strongly encourage the use of limit orders on these, in this case using both pieces together rather then legging in when trying to establish a position. If you don't get filled at your price, forget about it.

Straddles Can Leave You Without a Paddle

Some folks might be willing to step up and sell some nearer-term options, namely November options that expire this Friday, in order to capture the acceleration of time decay as expiration nears. This likely would involve selling a straddle, which is being short both puts and calls with the same strike price. A straddle increases the position's potential risk disproportionately to the increase in the maximum potential profit.

For this reason, I suggest selling a strangle rather than a straddle (the November 1230 straddle can be sold for approximately $7.20 total credit) because at-the-money options retain the most time premium. This means they will be worth something right up until expiration and they carry assignment risk, as it is likely one side will expire in the money. It's better to sell slightly out-of-the-money options, which have a higher theta, on short-dated options -- especially if break-even points or the range in which the position can produce a profit can be expanded.

Our strangle position has break-even points of 1202 and 1268 on the S&P (the total premium collected plus the call strike and minus the put strike, respectively), representing a range of 66 points, or 5.3%, at current levels. Through the first 10 months of this year, the S&P has stayed within a 6% range during any four-week period, so we have statistics on our side. But beware, this position does carry substantial risk. All it takes is one terror event or even a false alarm to send stocks reeling -- and you scrambling for cover.

2 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs