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Duration: 3:48

Instructor:

Contributor: Interactive Brokers

Level: Intermediate

Create a short strangle in Trader Workstation (TWS) using Strategy Builder.

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Study Notes:

From a Watchlist on the Monitor tab, click the underlying symbol you wish to create your options strangle trade for. So long as your tabs are part of the same Windows Group, the underlying will appear in the Order Entry panel.

To the right of the Order Entry panel select Strategy Builder from the dropdown menu. To the lower left of the Strategy Builder window, ensure the On button is active. If not, just click it to activate.

Above you will see the Option Chain window populate, with calls to the left and puts to the right of the strike column in the middle of the display. Use the tabs above the call area to locate different expiration dates. Above the put display, use the Strikes dropdown to fine-tune the contracts displayed on screen. You will see the price and daily change of the underlying to the upper right of the window.

Strategy Builder has several pre-defined option combinations available from the Strategy dropdown menu to the lower right of the screen. Reveal the list by clicking on the dropdown menu.

Select Strangle from the list, and notice the icon shown in the lower part of the display instructing you to click on a leg to display the strangle.

Notice that when the cursor is placed above the bid price of a call, the software automatically highlights the pertinent element for the rest of the combination.

For a short strangle, TWS knows that selling a call requires the sale of a lower strike put at the same expiration. Hence, both legs display in red. Move the cursor above the ask price on a call and see the related leg on the put side also moves to the ask price.

Locate the desired call strike you want to build your short strangle for. Scroll the mouse wheel up and you will see the call leg remain static, but the put leg widen to a lower strike. Scroll the mouse wheel down to narrow the legs in the combination.

When you have correctly defined both legs, click on the bid price for the call side to move both call and put legs move down to the Strategy Builder. Note that clicking on the Ask price would have generated the Long Strangle.

With both legs of the short strangle in position, below the bid/ask column you will see the price quote for the combination. This is the combined price of both legs, and in the case of the short strangle represents a credit.

Use the Order Entry panel at the bottom of the page to create your order. Define the quantity of strangle combinations to trade. Choose the right order type from the dropdown menu. If using a Limit price, choose the value by clicking in the input field or simply typing in the value. Select from the Time-in-Force dropdown whether this is a Day or GTC order. Your order is ready to review. Click the Submit button to generate an Order Confirmation. When you have reviewed the details, click Transmit.

The order is sent for execution at the exchange and will appear in the Activity panel to the lower left of Mosaic. To pause or interact with an active order click on it in the Activity panel and make the relevant choice.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Margin Trading

Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.

For additional information regarding margin loan rates, see ibkr.com/interest

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or click here. Multiple leg strategies, including spreads, will incur multiple commission charges.

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