How To Trade A Short Strangle In tastyworks - YouTube

Hey everyone!

Welcome back to another lesson.

In this video, I want to share with you how to set up a short strangle on tastyworks.

So, we're looking at a chart of XLE, which is the SPDR select energy ETF, and so what

we want to look at here is you've got the IV rank is 34.8, so not bad.

IV percentile, which is not displayed here, is actually much higher in the 80s, so good

underlying to look at.

It's got high IV.

So, let's go through the motions of setting up a short strangle.

First thing we're going to do is go to the trade tab.

And it'll pull up the option chain when you're clicked on the table view here.

If you minimize this, you can see the April at this time of the recording has 38 days

to expiration.

That's the one we want, right between 30 and 60 days.

You can see the monthlies are noted because they are a darker white, and the weeklies

are noted with the W or the key with the quarterlies, but they're a little bit grayed out, so we

want to stick to the monthlies.

In this case, the April 20 options, 38 days to expire.

Let's open those up and there's a couple different ways to enter a short strangle.

One of the easiest ways is just simply select your delta.

Figure out which delta you want.

We typically like to kind of be in that 15 to 25-ish, you guys, so let's look at the

18.

So, we can just simply click on the bid.

Go down the bid line.

Click on the bid and it'll populate and you'll see that it's kind of highlighted, outlined

in red.

That means we're selling that option.

Go over to the put side, do the same thing.

Look for about the 18 delta there.

Just click on the bid and that'll sell it there and boom, it is set up and ready to

go.

So, that's a very easy way to do it, if you want to piece it together.

The other way you could do it, let's clear that one off.

The other way is, all the strategies are up here in this dropdown, so you can simply say

you're going to short or sell, click the dropdown, look for strangle, hit go and it automatically

pops up on your screen.

So then, what you can do is just simply click and drag it.

So, let's drag it back to that 18 delta on both sides and there you have it.

It's all set up and ready to go.

Now, the other thing that you'll notice here is there's some statistics down below.

This shows that there's a 69% probability of profit if we held it all the way to expiration,

but the other cool feature here is the P50.

So, this shows us the probability of this trade making 50% of max profit.

In this case, we've got an 86% chance.

Shows you the delta, the theta, max profit.

Obviously, max loss is undefined, because this is a short strangle and that's how it

all sets up.

If you're comfortable with just that information and you're ready to send it off, you can just

simply hit review and send and it's off to get filled.

What I like to do, because I'm a visual trader, is I like to go ahead and take it over to

the analysis mode.

So, what you do, is you just simply click on curve and then make sure the analysis box

is also checked and that'll bring it up on your screen as the visual graph where you

can kind of scroll around and see what your P&L and probabilities are by looking in this

little flag here.

So, with one contract, we've got a max profit of expiration of $85.

Of course, you can kick that up a few contracts if you like by just tapping on the quantity.

Let's just go ahead and kick that up to 10 contracts.

Now you can see max profit, $850.

Now, this profit line here, obviously we haven't entered the trade, so it's simply sitting

here at zero, but what if we wanted to take a look at a theoretical movement in the stock?

So, we can look at the date.

Today's the 13th of March 2018.

But if we just click on this to move it through time, look what happens to our profit line.

You can see it's going up, up, up as we move through time.

Click back to today.

The other thing you can look at is implied volatilities.

So, you just look at the same options that we have on the screen, which are the April

20, 38 days to expiration, and you can play with the volatility.

So, if volatility increased, you can see our profit goes down.

When we sell a strangle, we want volatility to contract, so if we show that contracting,

you'll see that the profit line continues to increase as well and you could play around

with these to get an idea of a theoretical situation of how long it might take before

you take the profits off and any other type of theoretical situation you might imagine.

Then you close that and again, looking at the statistics stay here, both from the trade

tab and through the analysis mode, so you see the probabilities are the same.

Max profit, 850, probability of reaching 50%, 84% theta, max profit, mass loss.

Now, let's say you were looking at this and you said, you know, I want to change my strikes.

You don't have to go all the way back to the table view and mess with it there.

You can do it straight from the analysis, from the curve mode and you can simply just

click and drag.

So, let's say we wanted to get this a little bit tighter, a little bit closer to price,

just click and drag.

Click and drag this one and just bring it in and now you can look at your statistics.

Probability of profit of 65%.

Probability of 50% of 85%.

You've got the max profit now of 1,020.

You can see your theta's adjusted max profit, mass loss all set up and ready to go and so

when you're ready, just simply hit review and send.

Kick it off to your broker and get it filled.

So, I hope that was helpful in showing you how to trade a short strangle in tastyworks.

See you in the next lesson!