Hi Steemians,

today I wanna show you how you adjust a short strangle which goes against you.
But first let's have a look at my positions.

Yesterday I closed several winners, so there're not many positions left in my portfolio. But that is what you get, when the VIX is below 12.

Weekly Portfolio Update:

IWM Short Straddle:

This position started out as a July 157/165 short strangle. After my 165 short call got breached, I rolled up the put to the 165 strike and created a straddle. My overall credit for this position is $5.38.

source: tastyworks
At the moment the straddle is trading for $5.54. So the position is down 16 cents ($16 per one lot).

SPX Put Calendar:

source: tastyworks
I bought this calendar spread for $14.65, so at the moment the position is down 65 cents ($65 per one lot).

How to adjust a XLE short strangle gone wrong:

XLE has been a tough vehicle to trade so far in 2018. But that's totally normal. Every year you have at least one underlying which is bugging you.

First let's have a look at a chart of XLE:

source: tastyworks
On May 25th the position started out as a July 71/77 short strangle (30 delta) for which I got paid $2.08 ($208 per one lot).

source: tastyworks
On June 7th my short call got breached and my deltas became too short.
So I rolled up the 71 put to the 77 strike, to neutralize my deltas and collect more credit.

What started out as a short strangle became a short straddle for which I collected $3.65 in overall credit.

Today (June 15th) XLE sold off quite a bit and my deltas became too long.

source: tastyworks

So I rolled down my 77 call to the 74 strike to reduce my short deltas and collect more credit.

source: tastyworks

Now I have on an inverted strangle (the call is below the put strike).

source: tastyworks

I have only 19 long deltas now. My overall credit for the position is $4.96. At the moment the position is down 11 cents ($11 per one lot).
My original profit target hasn't changed. It is still 50% of the original credit, which is $1.04.
Had I not adjusted my position, I would be up 93 cents. But it is very rare, that you get whipsawed after rolling up the put. In 99% of the cases mechanically adjusting a position is the right decision.
As long as the price of XLE stays between 74 and 77 I will be fine.
The most you can make on an inverted strangle is the credit received minus the width between the strikes.
So in this position: 4.96 - 3 = $1.96.
I'm not sure yet, if I'm going to wait until I make $1.04 in profit. I will probably closed the trade as soon as I can get out with a little profit and then reestablish a new position.
We''ll see...

Have a great weekend,
Stephan Haller

Legal disclaimer: These are not trade recommendations. Options involve risk and are not suitable for all investors. The trades shown above are for educational purpose only.