How To Trade A Short Straddle In Tastyworks

How To Trade A Short Straddle In Tastyworks


Hello and welcome to this lesson
from NavigationTrading! In this video I wanna show you how to trade
a short straddle on the tastyworks platform. So, looking at the chart, we’re looking EWW,
which is the Mexican ETF, and as you can see, the IV rank is displayed up here in the upper
left hand corner 42.6 and it doesn’t display the IV percentile, but IV percentile is over
80. The options are expensive. They’re priced higher than they have been
over the last 52 weeks and so this is a good option to put on a short straddle. What we wanna do is simply go to the trade
tab, open up the option chains that we wanna trade. In this case, we like to enter between 30
and 60 days to expiration, and we like to stay in the monthly cycles, which on tastyworks
are noted by the bolded white. The weekly’s and quarterly’s are kind of grayed
out. We wanna stick to the … stick to the monthly’s
and enter between 30 and 60 days to expiration. You have 36 days, so that is perfect. If we open up those option chains, you’re
gonna see the different strikes pop up and when you sell a straddle, remember a straddle
is just selling a put and a call, both right at the money. So, at the time of this recording EWW is trading
right around $51. And so, we would simply go to the 51 strike
and sell the calls and sell the puts. You can do that by simply clicking on the
bid and clicking on the bid on the put side. You can see you’re selling because it’s outlined
by the red. So, that’s what you know what you’re selling. Then you can see the statistics down below,
probably a profit 53%, probability of making 50% on this trade is about 45%. You can see the delta, the theta, and the
max profit. Obviously we short straddles, we’re using
undefined risk, so you won’t see a defined number on the max loss column and if you’re
ready to go and … and like this you can simply hit review and send. Now, there’s one other way to set up the straddle
on the platform, so if you hit clear. The other way is you can use your strategy
dropdown up here. So, remember we are selling … so we’re shorting
the … the strategy, and then if we click on the dropdown we can just choose straddle
and it populates exactly the same way. So, whatever your preference is, no right
or wrong way, you can just click on the different bids to … to sell those options or you can
utilize the strategy dropdown. As you can see, all the statistics are exactly
the same. Now, what I like to do to confirm the trade
is I like to go over to the analysis tab because I’m a visual trader. If you click on the curved tab then make sure
you also click on analysis, this is going to bring up the visual representation of the
trade. Then you can … you can maximize this to
make it … make it look a little bit bigger for you. And so, this gives you an idea of kind of
where your break even’s are. The green is where you’ll be making money
at expiration. The red is where you’ll be losing money. All the statistics are still down here below
and if you hover your mouse over, you can see this little flag up here that gives you
an idea of the profit and loss at expiration depending on where price is. And then the profit and loss theoretical,
which is this curved line here, which will move as you … as … as the theta decays
and as you get closer to expiration and its price moves around. If you wanna play with these theoretical prices,
you can simply pop out this window here and at the time of this recording, today is three
15 of 2018. If you wanted to move through time, you can
see that profit line continues to grow as your getting closer and closer to expiration. If you wanted to play with the implied volatility,
let’s … you gotta choose the options that have 36 days to expiration that we’re looking
at and you can move the implied volatility up. Obviously that makes our profit line going
… go down ’cause when we sell a straddle, we’re anticipating a contraction or a down
move in implied volatility, so you can kind of see what different implied volatility levels
will do to the trade. And you can … you can play around to get
an idea of how a trade works. Once you’re ready to go, simply hit review
and send, and send that into the broker. And once you get filled, you’ll be in the
trade and ready to go. So, I hope this was helpful in showing you
how to set up a short straddle on tastyworks.

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