The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Does moving the unchallenged leg of an option trade make the breakeven points wider or more narrow?” This is a common question that I get and it's always a point of confusion for many traders, is “How do we adjust or hedge a trade when the stock is moving against us?” Now, one of the techniques that we try to teach here at Option Alpha and you see this all over the web also, is that moving the unchallenged leg of an option trade or the untested side of an option trade closer to where the stock is trading ends up being a good technique to make the adjustment. For example, if we have a strangle and the stock starts moving lower, we would roll the call side of the position down and move that call strike to a closer strike. That is the unchallenged, untested, the side that the stock is moving away from. We move that side closer. Now, the question here today is, “Well, what happen