Short strangle adjustment

[pawelz]

Hi,
I sell 1700 put/2000 call strangle on the Polish WIG20 blue-chip index, currently @ 1850.

I have been doing this for some time, and never really came into a situation where I would have to worry about adjusting the position - both legs normally expired worthless and I just cashed the whole premium.

However, I need a back-up plan just in case the underlying index rallies or falls sharply.

What adjustment tactics would you recommend? Here's what I am thinking of:

say the index rallies above 1900. I don't wait until it goes up much further and makes the 2000 calls too expensive. Rather than that, I sell more 1700 puts and try to keep the position delta-neutral. I could, alternatively, buy back 2000 calls, but why do that if (1) I still have spare money (2) nothing really indicates the rally would be sustained to the point where the index brakes the 2000 strike?

Thanks,
Pawel

 

[Glenn]

"However, I need a back-up plan just in case the underlying index rallies or falls sharply."

Always cut your losses fast.
Get out and review the market before you go back in.
Better to take a small loss than risk a big one.
If the Index goes the way you want afterwards, then all that happened is you took a small loss.
No problem.
Move on to the next trade.
When you are selling strangles it's always the unexpected which comes along and takes away your profis from previous months.
Don't let it happen - get out !

Glenn.