If I go long volatility by buying a put and a call and the security moves in the direction of a call, should I

Question

immediately sell the put or wait for the put to hit later and just cash in the call for a profit?

Answer 1

There is no "correct" answer to that question. You need to look at why the stock moved and what your projection for the future is to decide the proper action to take. If you do not have a projection, you should close both legs of the spread immediately regardless of the current profit or loss.

Answer 2

there is no easy answer to this question.First of all going long volatility is the first higher risk part of your trade as options favor the seller. Going long both the call and put premiums means the volatlity has to not only work but that the move has to be larger, much larger than if you just got the direction right. If you dont have reason for getting out of an option other than just the price then you probably shouldnt be trading options, but to answer your question you also could spread off the call if thats the one thats working and continue to hold the put , personally unless you have a good reason not to, i would exit both positions at the same time if you are making money...unless the put option is almost worthless...then i'd hold it for a possible bounce..and puke it out a tad higher if you get the move or also you could spread it off on the "countermove"...option trading is both science and art and using a technical system or some other method to tell you when you probability suggests your move is "over," should be married to the way you are looking at your trades in my humble opinion...i hope this helps..remember a long call which is spread off with a long put that is spread off when they all have the same strikes..is an arbitrage position known as a box and is risk free once its executed..In my opinion a better strategy than what you did is to enter into the long volatlility trade by putting some wings on it..and turning it into a butterfly..that way you can adjust the side thats running if you need to and leave the other side alone to die a natural death....no matter what, there is no "pat" answer for this question that would work under all circumstances..

Answer 3

Ok, I will say that the previous gentleman answered the question pretty well; however, I have something to add. The simplest answer is to close out the postion and bank the profits on the call when you can. Remember, if the price moves in the direction of the call, and you choose to wait for the put to "hit" later, then you're in the same position all over again, just from the opposite direction. The stock would have to pop AGAIN on the call side to make money that way. If you bank the call, then, at the very least you've got the potential for more profit, with one side in the bank.
You need to ask yourself one question to begin with here. How much time do you have to devote to trading on a regular basis? To come up with an option strategy is to understand the underlying stock, and to understand the market beyond that. It doesn't work the other way around. The butterflies and the condors are great and all, but I'll tell you this- I work the phones all day with people that trade up into the dozens of times per day, both stocks and options, and they are at all times at least 2 steps ahead of me and I have to play catch up in about 3.5 seconds while I look at what their doing and we talk strategy. Now I say they are at least 2 steps ahead of me, because they're out there doing the research on these stocks (almost predominantly technicals, with already a fundamental knowledge basis), which is something I don't have the time to do. I love to trade options, but realize my limitations-not because of knowhow, but because of lack of any real allowable preparation or time to keep track. So I keep my trades and positions fairly basic-and this is my profession. Do you have the time and other resources to do what other people here are advising you to do? I just don't want you to get over your head. If you get to where you're trying to do something you don't understand, getting on Yahoo answers isn't really helping, to be honest, although this may be part of a learning process. I know there are places that you can get a practice account. It is one thing to be told an answer, it is quite another to learn how to arrive at that answer yourself.

Answer 4

The latter.