1:1 Take Profit on Straddles


#1

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


#2

There are multiple ways to play them. After a few more webinars you will see i show different methods. You will also notice I rarely every do straddles. My focus is iron condors and they are less about a 1:1 and more about just managing the risk.

I believe eon that show i was just saying that you need to net a $40 profit if you had a $40 risk and that the formula was not exact but I can put one together for you. If you want an exact on a straddle its simple.

Add Total Risk + risk of other side and that is what you need to make for a 1:1 - have to do this on both sides and this gives a take profit level for for 1:1.

But i also look at expected moves Expected range magnet prices deviation levels Volume news results etc… to know when to adjust