Psychology and Straddles

The Psychology of Trading Straddles – A Real Example

Hey traders, Dan Passarelli here.

Yesterday, I put on a straddle trade in SMCI (Super Micro Computer). This stock moves—a lot. A $9 swing in four days is nothing unusual. While the implied volatility wasn’t particularly low, the price action made it an interesting setup.

But here’s the real challenge with trading straddles: psychology. In fact, psychology plays a role in all trading, but with straddles, it’s even more critical. The reality is that you often have more losing trades than winners, which can mess with a trader’s decision-making.

This morning, SMCI was up about 7%, but with rising stock prices, implied volatility tends to drop. Between that and time decay, my position wasn’t gaining as much as I’d hoped. Seeing it struggle at the 50-day moving average, I decided to lock in a small gain instead of risking a reversal into a loss.

This is a perfect example of why managing emotions and making rational decisions is crucial in trading. The goal is always to cut losses short and let winners run—but knowing when to walk away is just as important.

Hope that helps! Be sure to subscribe, and as always, trade smart.

#OptionsTrading #TradingPsychology #StockMarket #StraddleStrategy

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