Darrell, on Monday’s radio show you said a simple way to do the math to get your 1:1 take profit price on a straddle is (on the buy side) is to just add your risk to your entry price. This isn’t truly a 1:1 though, correct? It doesn’t account for the price of the opposite side of the straddle (i.e. risk on each side is $20, total risk $40, take profit would give you $40 profit on that side minus the $20 you lost on the other half of the straddle, so your net profit would be $20 and the risk:reward would actually be $40:$20 or 2:1)
I was under the impression that we were going for 1:1 including the cost of the other half of the straddle, so we would need to add both total risk and price of the other side of the straddle to our entry price to determine take profit. In the scenario above, entry price + 40 ticks + 20 ticks. This would net you $40 of profit, matching your $40 of risk.
If this wasn’t a mispeak on your part, I’m assuming that when you say 1:1 take profit, you’re basically saying it’s a 1:1 in each direction, as you’re risking $20 to make $20 in each direction, and haven’t technically lost on the other side yet (may come back and expire profitable as well).
Definitely want to clarify this, as in almost all of the news trades (both Straddles and Iron Condors) you recommend a 1:1 take profit price, and looking for 20 more ticks makes a big difference in whether that price gets hit or not.
Thanks, Mike