Something I’ll do occasionally is add a Long Straddle to my portfolio as a way to hedge some of my regular trades which are mostly short Vega.
Adding a Long Vega trade can help offset some of that volatility risk. I.e. if the market had a big drop and subsequent rise in volatility, it’s going to negatively impact my Iron Condors, but that will be partly offset by the gains on the Long Straddle.
I usually go out a couple of months to minimize the impact of time decay. Going out to July is a bit shorter-term, but will also cost less.
With a trade like this, I would always close it out halfway through the trade as time decay will really start to pick up from that point onwards.
I would also set a stop loss of about 10% of capital so around $140. If I have to take a loss on a trade like this, that will means markets have been pretty quiet and I should have made much more than that on my Condors.
Here is some further reading on Long Strangles:
Any questions, let me know.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.