There are no exact rules when it comes to establishing where to set your stop loss with option selling. It comes down to your risk tolerance. Scroll back a little in this thread and look for Ron99's advice on keeping 66% of his account in cash to deal with his very far OTM short positions going against him. It is very effective. Whatever you decide on, write it down. It requires a lot of discipline to take a loss. It is very human to "hope" that a losing trade will turn even though it has reached your stop loss. This is where most traders get into trouble.

Back in the days when I was selling a lot of ES options, I exited when the premium doubled but I was selling strikes that were much closer to the money, usually with delta's of 0.15-0.20. The premium that I collected was usually around $400-$600 per option. I sold a lot of strangles using a variation of this stop loss method. For example, I would sell a call and a put that contained about the same premium. Let's use $400 for each. I would collect $800 total. Should either side double, I would exit the entire strangle. My reasoning was that the markets can't go in both direction at the same time. I would lose $400 on one side but the opposite side would gain at least half, in this case $200, this would limit my total loss to $200. For a few years I did well selling ES strangles. I was profitable on 75% of my trades.

I stopped because the margin on ES keeps going up and the imbalance of the premium with the calls vs puts became larger and larger. Like I mentioned in my last post, it is hard to find the right call strikes to sell in ES, premium is so low at the farther strikes that it is not worth it. I can use my margin much more effectively selling CL or grain options.

I am not a fan of buying an option(s) to offset my short options. I would rather exit and take the loss instead of trying to apply a band-aid to a losing position. For me, it is better to get out and re-evaluate.

Thanks MJ888, I have that position on live (along with several more in other commodity markets) and it's behaving exactly the way the reverse double diagonal spread usually does given the quicker time decay on the closer long legs. It's the next few weeks that usually start to show a building profit as the long legs don't change much more relative to the further out short legs which accelerate their decay. One side will usually have decayed quicker so I often buy in that short leg (and as discussed keep the long to expiry) then bring in the other side's short leg a few days to a few weeks later.

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MJ, can I have your views on short strangles on far OTM? Thanks.

I figured you have the position on for real but I just wanted to simulate it so I can get a better understanding of how it works. I wanted to observe how the margin requirements reacted to a sustained move in one direction. And that is exactly what CL is doing now.

And yes I see that the premium on the short June 108 CL calls have deteriorated nicely. So I do understand what you mean when you say one side usually decays quicker.

Here are my questions Homerjay: Are you concerned about how close the June 83 CL puts are getting to the money given the sell off in CL the past 10 sessions? And what is your stop loss strategy should CL continue to sell off moving you even closer or maybe even INTO the money on this leg of your trade?

Thanks!