To see the setup of this strangle play with an explanation of the strangle setup see my previous Peanut Gallery post.

PCX looks to have broken down, rather than up out of its consolidation range when I set up this strangle a couple of weeks ago.  They announced a big issuance of new shares which added fuel to it starting to break down.  Here is an updated chart showing where it is relative to the green breakeven cone:

So it is just leaving the breakeven cone.  Last I looked my combined option premium is down a bit from the $2.65 I paid but if this breakdown continues it should get into a profit. 

This is a good example of why I like option strangles.  When this was set up a couple of weeks ago, the PCX chart looked pretty bullish with a nice bullish triangular consolidation.  A normal long would be down about 25% now.  The option strangle is going the opposite way, the further it breaks down the strangle premium will be going up.

So now that PCX has broken down, if you have a strangle on it, you have to cheer for the drop to continue.  And I will plan to watch this close in the coming days to see where it goes, you don’t want a strangle to get in the money only to bounce back into the green breakeven cone a month from now and you lose your profit.  I have let many slip away in the past like that.  And on a downward breakdown on a strangle like this with an asymmetrical cone the downside breakout is less profitable and quicker to erode (see the cone in the graph above).  So I will be especially quick to take profits on this. 

So I will look for this to go down towards 5 bucks which should bring the strangle combined premium to 15 to 20%.  At that point I may just take the profit or I may hang on with some stops in place.  I will let you know.  There is still alot of time to let this play out before expiration but on the downside when a stock is in the single digits, the profit potential for a put dries up.