Sell the Meat, leave the Buns

I do a decent % of 3-piece Option trades and I wanted to show a recent example of how this trade design can you give a LOT of flexibility when exiting. For this example I will look at $BIS. Here is the trade:

  • BISLong the March 15/16 Call Spread
  • Short the March 13 Puts
  • This is a Risk Reversal Call Spread
  • This trade takes margin due to the short Puts

The ETN moved up nicely with some Biotech weakness but stalled as buyers stepped into this sector on the weakness. Price on $BIS is currently trading under $15.

So what is this “sell the meat, leave the buns” stuff? Well it is one simple way to think about how to exit a trade when you are given an initial move in your favor – but then it stalls. By selling the only Long piece you have – the “meat” – you are leaving 2 short Option pieces (the buns, not as nutritious but an important part of a burger nonetheless lol). In this case you are leaving the short $16 Calls & $13 Puts which = a Short Strangle.

 

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