Short Strangle

Strangles give you a wider profit zone - you profit if the underlying stays between your strikes, not just at one strike. This means higher probability of profit, though you collect less premium. Most traders prefer the higher probability of strangles.

Yes. If the underlying rises sharply, your short call has unlimited loss potential. If it falls sharply, your short put can lose substantially (down to zero). This is why position sizing and stop losses are critical.

Typically 10-20% of the underlying's notional value. Lower than Short Straddles because OTM options require less margin. For FTSE at 7,750, expect £8,000-15,000 margin. Keep 50% buffer for adverse moves.

Iron Condors add protective 'wings' that cap your maximum loss. You collect slightly less premium but gain defined risk. Most professionals prefer Iron Condors because the extra premium from strangles rarely justifies unlimited risk.

50% of premium received is standard. If you collected £105, close when the strangle is worth £52.50 (profit = £52.50). This captures most of the profit while removing tail risk.

Both are valid. Delta-based (e.g., 0.15 delta) accounts for volatility - strikes are further out when IV is high. Percentage-based (e.g., 5% OTM) is simpler but doesn't adapt to IV. Many traders use delta as primary guide.

Generally no. If profitable, take the profit. 'Adjusting' a winning position often just creates new risk. The exception is rolling to the next month if you want to continue the thesis - but that's really a new trade.

Rolling up/down means changing strikes within the same expiration (e.g., moving your call from 7,950 to 8,050). Rolling out means moving to a later expiration. Both can be done for credit or debit depending on market conditions.

If you entered AFTER an event (as recommended), IV crush helps you - options become cheaper to buy back. The danger is entering BEFORE events, then IV spikes into the event, then crushes after. Always avoid pre-event positions.

Close the whole position if: thesis is broken, stop loss is hit, or time exit is reached. Close just one leg if: you want to reduce risk on one side while maintaining the other, or if one leg is very cheap (worthless basically).

Basic method: POP ≈ 1 - (call delta + |put delta|). More accurate: use log-normal distribution with your specific IV assumption. Most accurate: Monte Carlo simulation with fat-tailed distribution. For practical purposes, delta-based is sufficient.

Rule of thumb: limit all short vol exposure (strangles, straddles, condors) to 20-25% of portfolio margin. Individual positions: max 5% of account margin per strangle. This survives most tail events without devastating loss.

Compare IV at potential strikes to ATM IV. Sell options where IV is relatively high (overpriced). Watch for unusually steep put skew (might be warning of downside risk) or elevated call skew (upside concerns). Use skew to inform asymmetric strike placement.

There's no universally optimal delta - it depends on risk tolerance and market conditions. Conservative: 0.10-0.15 (high probability, low premium). Moderate: 0.16-0.20 (balanced). Aggressive: 0.25-0.30 (higher premium, lower probability). Most traders use 0.15-0.20.

Consider holding a small long vol position (OTM puts, VIX calls) to hedge against market crash that would devastate short strangles. Size hedge to offset expected loss in crash scenario. Accept that hedge reduces overall returns but provides survival insurance.