1 Day And 16 Option Trades (I’ll Cover Each One Here)

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Options trades: Tonight, we’re going to go over all of the trades that we made. It was a very busy day for October 8th here which is a Wednesday. And finally got the internet back at the house and now everything should be back on track as far as doing videos, and it's just a lot easier for me. You guys probably won’t notice much, but a lot easier for me. I don’t have to go to McDonald’s or Starbucks or to the grocery store to get free Wi-Fi, so that’s a big relief off of my shoulders.

Now today like I said, we had a very busy day, probably one of the most working days we’ve had all year. I don’t think there’s another time during the year that we’ve made as many trades as we made today. I think all in total; there are about 16 trades that we made today which is a pretty heavy dose of trading. And for those of you who are new and just got started, don’t think that this is an everyday occurrence.

And apparently, members that have been with us for months and years know that this is probably one of the more active days that we’ve been, and it's just a matter of the market situation that we were in, it’s a ton amount of volatility, there’s a lot of news coming out, earnings starting to kickoff, we had the FED speaking today, so just a lot of activity in the market and you just got to take advantage of it. It was kind of interesting.

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Even though we’ll go over all the trades here, I just wanted to go quickly and show you guys an intraday chart of the S&P. And this is the Spiders obviously. This is over the last couple of days. And what you’ll notice on the right-hand side is today's price action, and you can see just how volatile today was. We were down on the day early in the morning, and then in the afternoon, we recovered, and then right after that FED announcement, we just shot up and continued to move higher.

And this was pretty much across the board with a lot of stocks. Oil and gas were a big one that was down earlier in the day, down very big across the board, continued to rally throughout the rest of the close. Pretty much everything on the board was down early in the morning and then rallied big-time throughout the day except for probably JCPenney which was down almost the 11%, 12% just today and had stopped trading throughout the day. It was a very active day, and it's not something that we usually are going have, this active of a day.

Sometimes we only make one or two trades, but today, to make 16 trades is pretty active in a long day. What that means is that also tonight’s video is going to be a little bit longer, so stick with me. I know it’s going to be a longer video, but I want to go through as much of these as I can just, so you guys understand exactly what we’re doing. We had a lot of opening trades, a lot of closing trades obviously, and then we had a fair amount of adjustments that we had as well.

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Let's start off with the VIX and some of the opening trades. We’ll work our way straight down the trade alert section inside Option Alpha here. And the first trade that we did was selling VIX calls. During the earlier part of the day when the market was down, implied volatility was up across the board for everything. And for me, it’s always been a good trade to sell short premium on the VIX and especially with call spreads.

I’m not really a fan of selling naked calls on the VIX because back a couple of years ago, the VIX was up at 70 and 80 and I don't really want to have that type of exposure, but I do want some downside exposure to the VIX if it starts getting up into the 17, 18 type range. And we already have a position for October, but we went ahead and added another position for November.

We sold the 18/20 call spread in the VIX, took in about $.45 in premium, so that moves our breakeven point out to about 18.45 on the VIX. And let me just get away from the intraday charts here, and you guys can see where the VIX is. The VIX ended up the day down around 15, but like I said, we made this trade earlier in the day when the VIX was up around 17, so for all intensive purposes, it’s going to be well in the money right now. We’re making some excellent money on this trade already.

I think we’re up to $37 in the trade, about $137 on the day on the VIX, so a very, very good trade for short premium and volatility. And that's just what you have to do. When the VIX gets up here, you can see that it doesn't get up here that much during the year, so when it does, you got to use those opportunities to pick your entry points and be firm about what you’re doing and even add to the position like we did, not knowing that it was going to turn around today, we just saw an excellent opportunity to add some premium in our portfolio.

EFA and XRT are both vertical call spreads that we entered into today so that you can see that EFA for November and XRT for November, both call spreads that we entered into for EFA, it was selling the 64, buying the 65, took in about $.20 of credit on that one. And XRT, we sold the 87 and bought the 88 calls, took in about $.25, so a little bit more premium in XRT than EFA.

And really with these two trades, what we were doing is not necessarily thinking that they’re going to go lower because we lost a little bit of money today when the market turned around, and both of these jumped higher. But after we had exited a lot of the trades that we had below, so after we’ve gotten rid of Google and Oracle and UPS and NCR and some of those trades that are real, really bearish, then what that did is that tilted our portfolio to be a little bit more bullish than we wanted.

During the middle of the day when we had exited a lot of stuff from rolling stuff off from October, what I found is that our portfolio once I did the Beta weighting to SPX which I talk about in video tutorials inside Option Alpha, so if you don’t understand Beta weighting, go ahead and watch that tutorial, I think it’s in the bonus section right inside the membership area.

But what we did is we found that our Beta weighting was a little bit more bullish than we wanted, and during the middle of the day, we didn’t know the market was going to rally, everything was down, so at least at this point, what we wanted to do is rebalance the portfolio. And that's the only reason that I decided to go with the call side versus the put side.

I’m going to go over EFA and XRT here, but you’ll notice at the end of just going over these two that you could’ve easily done the put side or the call side, it doesn't matter. What is important is that you look at trades like this and figure out how they fit into the overall portfolio. If you’ve got 10 bearish trades, you want to add a bullish trade; you want to start to even it out.

You don’t want to have 20 bearish trades and no bullish trades; you don’t want to be one directional in this market or any market for that matter. For both of these, even though we got burned a little bit today on these, they might end up working out. Who knows? But we needed to get a little bit more bearish bias in our portfolio. We became a little bit too bullish after closing out some of our bearish trades.

For EFA, you could probably make the case that a lot of these were real, really on the down and out and you can see it rallied back here towards the end of the day. But this one, it was much, much lower today during the middle of the day, but it’s had a huge move down. I think that generally, the stock might go higher, so that’s just my bias that at some point, we’re going to get a rebound here. But even though that’s my bias, what I needed in my portfolio was not another bullish trade.

I have a lot of bullish trades, I don’t need any more bullish trades, I need to start to even it out and get some bearish trades in there, so that's why I decided to sell the call spread on EFA. If we go to the trade tab, what you guys will see here is that with our position, we’re down about $62 today just because of that reversal in the market, but when we sold this position initially, it was at about the 20% probability level.

Even though right now it’s about 33%, originally it was at the 20% probability level, so we’re trying to make it an 80% chance of success trade, 20% chance of losing trade, and it still might work out. But if you wanted to do it on the other side, so if you weren’t bullish or bearish or if you needed another bullish position in your portfolio because you were too bearish, then what you do is you just go ahead to the other side, so to the put side and find the corresponding probability of profit.

In this case, you would've sold something like the 60/59 on the bullish side and sold options on the market, anticipating that the market would go higher. That whole idea here is critical. It’s not so much about being directionally right. It’s about having an equal portfolio and having traded on both sides. Alright, XRT is very much the same way. We sold the 87/88 call spread in XRT. XRT had a lot more implied volatility.

At the beginning of the day, it was up around 70, has dropped down around 55 as far as IV rank and that's up in the top left-hand corner of your screen here. And you'll see that we had a nice little rally, but we’re looking pretty good here; I like where we’re at as far as strikes still with XRT. Who knows if the market is going to stage a big comeback or not? We’re right here at 87 and 88 which is the 35% probability of success level today.

When we sold these options, they were about the 25% likelihood of success, so if you wanted to do the other side of this trade, if you weren’t bearish, and you’re a little bullish on XRT, you’d maybe go down to somewhere around 81/80, somewhere in this range, sell the 82/81 or the 81/80, something below the market because you’re a little bit bullish, but still sticking with that same probability of success that you want to target.

And then the last one that we got into today for new trades is TLT. TLT is one that I mentioned on the strategy call to premium members last week and the week before. It’s one that I've tried to get into a couple of times, and I’m glad that I haven't got into any call spreads because TLT has just continued to rise and rise and rise. But we got into this one before the FED meeting minutes because we knew that there’s going to be a drop in implied volatility which happened right after that FED announcement for bonds, but we wanted to play bonds a little short.

They’ve been rallying and eventually, they’re going to go still through some corrections and still going to go through some ebbs and flows in the market, so we decided with TLT to sell the 122/124 call spread, and that gave us a $.36 credit, so a very, very rich premium in TLT. We’ll go to the chart here of TLT, and you guys can see exactly where we’re at. You can see bonds have recovered very, very nicely as stocks have sold off.

And really with TLT, implied volatility has been very, very high, up in the 73rd percentile. It was up above 80 today before the announcement, so a very, very high implied volatility and that allows us to get a little bit further away from the market than we usually can with TLT. Going out a little bit, we’re still at about the 28% chance of success level today. When we sold these options, they were about the 20% chance of achievement level, so it’s going to move and fluctuate.

But I feel comfortable about this position, I like it, I’ll hold it through most of November, and if we need to make adjustments, we will. But I like being short bonds, especially in this market even with what the FED man had said about continuing to support the economy with lower rates. I still feel that short bonds are probably the least path of resistance long-term, so I’m going to continue to be short bonds overall and I think it’s a good strategy. It’s paid off well throughout the year.

Alright, closing trades, I'll go over some of these, but we had a slew of closing trades. The ones I want to focus on most are the weekly options. What I want to do quickly is cover some of these calendars that we got out of. These calendars were all pretty much scratch trades. We had calendars in Oracle, UPS, and Nike.

We’ve made a little sum of money overall throughout the month with calendars for October, but generally speaking, they’re going to be scratch trades, they’re going to be things that just keep you active, there are ways to play the market a little bit bullish or a little bit bearish. In each of these cases, what we tried to do is just get out of the trade as we’re getting closer to expiration.

With implied volatility higher, that's what we’re looking for with calendars. We want higher implied volatility with calendars, and that allowed a lot of these things to balloon a little bit in profit. And I don’t want to wait for all the way until the last moment for these, so we just decided just to go ahead and use up some of our tradings today to get rid of some of these positions and take a little bit of profit.

For Oracle, we got out of our 39 put calendar spread and took in a $26 profit, pretty much a scratch. Same thing with UPS got out of our 92.5 put calendar spread at a $.17 profit. And then Nike, we got out of our 90 call calendar spread at a $19 profit. The one that’s interesting to me is UPS. We had the 92.5 call calendar spread, and when you look at the chart of UPS, you’ll notice that actually, UPS isn’t anywhere close to 92.5. 92.5 is all the way down below where we even see the chart now, and UPS has been trading around 96/98 for the entire month.

But what made this trade profitable because we traded this thing outside of the range. We needed UPS to move down lower. But what made this trade profitable is the fact that implied volatility had gone up dramatically in UPS. When we made this trade originally, IV rank was down well below the 50th percentile, and now it’s up at 67. What that means is that these options have ballooned in value and that helps our calendar spread.

That’s one of the ways that we can trade calendar spreads going from low implied volatility markets up to high implied volatility markets. You’ll notice that UPS went nowhere near our calendar spread strike at 92.5. In fact, it practically traded away from that strike. And yet, we still made a little bit of money on this trade because implied volatility went up. Had UPS gone down a little bit and IV went up, it would've been a much bigger profit.

But I'm euphoric with this trade even though it was pretty much a scratch to a small winner because we’ve made money and the stock went completely against us. But what we are playing and what you need to be playing as an options trader is playing the right side of volatility. This is an excellent example of being in the right place with volatility even though the stock doesn't go exactly the way you think it’s going to go.

Alright, the other ones that we got out of today are Google. We sold out of our put debit spread in Google, took in a nice little profit of about $56. Verizon, we got out of because we did not anticipate that the market was going to turn around at the end of the day, so we went ahead and scratched that trade. We got out of it about a $.50 credit, so took a $75 loss.

And then the another one that we got out of is just a debit spread in NCR. It’s the first time we traded NCR this year and did pretty well on it. The stock went down which is what we anticipated, and we went ahead and sold that back to the market for a $.75 credit, took a $50. Slight trade in those, only one or two lots, so not big trades, but means to stay active and rebalance our portfolio.

Alright, the ones that I want to go over for sure are these weeklies because these are all the earnings trades that we went over last night. We placed three earnings trades yesterday, all of them turned out to be profits which are great. That sets the tone for earnings season. I like when we start getting in the earnings season, we can place some of these trades and make some great profits right off the bat.

And of course, there’s bound to be ones that are going to come up, that are going to move outside of that expected range, but for us, we want to be very conservative with these earnings trades. You’ll notice that I did them as very small lots because if we have to go after them and adjust them aggressively, then we have to leave room for capital to do that.

Whenever you do earnings trades, please make sure that you do them very small lots. I'm doing them one or two lots which mean that most of you should be doing them one or two lots as well. If not, all of you that are new beginners should be doing them at the very most, one lot, never two or three or four. Don’t get overly aggressive trying to go for that credit.

The first one that we got out of today is Costco. We bought back our strangle which is the 129/121 strangle. We bought that back today a little bit after the market opened for about $.30, a $.26 profit. Costco was the only one that went towards our upper strike at 129. You’ll notice that Costco had a pretty decent move. Our upper strike was at 129, the stock closed about $.25 below that level, so that one, we didn’t have a huge profit on, it still made money even though the stock was up almost 3% on the day because of that drop in implied volatility.

And let me just actually throw on the charts here of that IV drop. And there it is. And you can see that what we’re playing is more so than the stock directional move; we’re playing that implied volatility that we got absolutely in Costco as well as the other ones across the board. The another one that we got out of was YUM. YUM was a nice one because it landed right in the middle of the range. YUM went down very, very quickly early in the morning.

It was the first trade that we got out of and our best exit because we paid a $.9 debit to get out of the trade, so we made $96 on that trade in YUM. YUM didn't move all too much after earnings. It was up a couple of dollars and ended the day neutral to down. But what you see is that implied volatility drop that we’re playing and that’s exactly what happened. Like I said, YUM was pretty much a stagnant move throughout the day. It was up a little bit, down a little bit. We were at 75 and down well below 70, but we had a nice little profit on that drop in IV in YUM as well.

And the last one on MON. We got out of MON quickly. It tends to be a huge mover. It probably could’ve made a little bit more money had we been a little bit longer in our exit, so if we waited a little bit longer at the exit. But I always don’t like to leave these things on too much. We’re trying to take advantage of that drop in IV and that's really what you need to be focusing on. Don't be greedy. I always like to get out of these as quickly as we can if we have a nice profit.

We bought back our MON strangle for a $.41 debit, took in $92 on that one as well, so a nice little trade on MON. That one had a much bigger move on the open but recovered for most of the day. You’ll see that MON opened much lower, started to test that lower boundary, still not low enough to where we were. We were down below where the stock opened, so the stock opened inside the expected range which we talked about last night.

But here it is, that huge drop in implied volatility that we know we’re going to get after earnings, so that helped solidify that profit on MON. And if we would've waited a little bit, we could’ve made more money in this trade, but at the end of the day, it was still a winner, and that’s all right for me. Okay, onto the adjustments. And I know you're sitting in there and hopefully still with me here, so just hang in there with me. We’ve got three more adjustment trades to go over.

And I know this is a long video, but I want to make sure I go through all of these in detail for you guys. The first adjustment was in PBR. PBR apparently made a huge move lower today and then continued to rally throughout the day with the stocks. What we did today is went ahead and made a huge move higher today, went ahead and rolled up our 12 strikes up to 15.

As PBR headed higher during the first part of the day, what we decided to do was via a vertical spread, we sold the 15s which is our new position, and we bought the 12 puts back. We were already short the 12 puts, we bought those back, took in a very nice credit of 107 on these which just helps widen out our breakeven prices on PBR.

Now, PBR has still seen implied volatility go up even though it was up early in the morning and had a really, really volatile day, it ended relatively neutral to up, I think it was up like $.5 or $.6 on the day, but you'll notice just how dramatic this move up in implied volatility has been. The best trades right now for these are strangles because you want to take advantage of just that pure possible drop in premium and value.

When we go to look at the profit loss chart here of PBR, what you'll notice is that we now have the 15 straddle for November. Now, we’re completely centered over 15; PBR is trading up around 16/18, and you'll notice that by taking in that extra credit, that moved our breakeven point out further this way to about 17.5. Now, we’ve got a little bit more room on the topside for breathing.

Obviously, we still would like to see the stock come down from about 16.80 and settle somewhere around 15, but as soon as we get that drop in IV as we've seen with these earnings trades, we’re going to see an excellent profit start to solidify because of just purely the decline in IV. I think this was a good adjustment today, I like the adjustment in PBR, and we’re going to continue to keep this position small and just adjust as the market goes.

The another trade adjustment that we made today was diagonal in XOP. Don't get confused. And I sent out the alert, and I even put it in here, and I said, “Don’t over think this. When you're doing a diagonal, you're doing nothing more than doing a calendar with possibly different strikes.” And in this case, we did a calendar for both of our trades just to roll them out to November.

For our XOP straddle that we had, we had the 67 call and put, so we were short the 67 call and the 67 put for October and what we did using a diagonal is we closed out or bought back the Octobers and used that money to then resell the Novembers. We used that diagonal to get out of the Octobers and then reestablish the position in November. By doing this, we took in an overall credit after all of the buying and selling of $210.

That helps us move out those breakeven points on either end an additional $210 from all the credits that we’ve already received which gives us a nice credit in XOP. Now, when you go to the chart here of XOP, you can see this is one of the most volatile stocks today and ended up on the day which is crazy because, during the day, it was down like $2.5, so actually turned full circle and ended up. And we need this thing to go up. That's really what we’d like.

But moving it out all the way to November just really took advantage of the implied volatility that was out there. Even though I don’t usually like to roll this early in the cycle, I want to make use of the implied volatility that was already prevalent in November for XOP. And you can see it’s at the 100th percentile, so it’s as high as it's been over the last year and rightfully so because the stock has continued to selloff.

Now, when we go to the actual trade tab, you can see here that you want to focus on this orange line which is the profit and loss line for XOP in November. That’s November expiration which is 11.22, and you’ll notice that the stock is now trading right here at 63.91. That’s now trading inside of our range, and we’ve got a huge range in XOP. The stock can go all the way down to 60 and all the way up to 74, and we still make money on this trade at expiration.

By rolling it out to November, we took in a massive credit that widens out the base of this massive straddle in XOP, and you can see that our new profit window for November is anywhere between 60 and 74. If I go back to the chart here, you guys know that that's a pretty massive window of opportunity for us to make money, 60 and then all the way up to 74.

Even if this thing completely rebounds up to about the level that it started to breakdown that supports level and fell to that support level, then we still have an opportunity to make some money. I think it’ll be probably nothing for this stock and oil and gas, in general, to get back up around 68/69 as far as the price, so that is in the sweet spot of our range and that’s what I’d like to see happen.

And then the last trade adjustment that we made here tonight is in OIH. OIH with a lot of oil and gas because we’re very bullish on oil and gas was down early on the day, so what we decided to do was go back in here and sell the call side of this trade in a weird strike. You just have to make a lookout for these. And sorry for that Thinkorswim alert.

But make sure that you look out for these strikes, place these orders slowly, make sure you’re getting all the right stuff, don’t put them as a buy order or the wrong strikes out of place, take your time with these. With OIH, what we did is sold the 46.5 calls and bought the 49 calls. Now, the reason that we bought the 49 calls is that they’re practically worthless, actually didn't serve us any purpose, but other than to manage our margin.

We sold the 60/46.5 calls as pure means to collect as much credit as possible. We gathered on this vertical spread that we sold $.67 in credit. Now, we did sell one additional contract for OIH, so I want to go here to the analyze tab just so you guys can see exactly what our position looked like in advance. This was our position in OIH before we made this adjustment.

We had two of the 46 puts long, we were short two of the 49 puts, and what that meant is that at expiration, we could lose at most about $516. If OIH continues to move lower, we will lose about $516, and the only opportunity that we have to make money is if OIH goes back up to around 48.5. By adding this call spread back and just adding one additional contract, that gives us what looks like a broken wing butterfly type shape here on the profit loss diagram.

And now at this point, we’re losing less money on the trade, so we still would lose about $200, but our max loss has been reduced on the very, very topside to about 465. We can’t lose any more money on this trade by adding this trade adjustment, so it reduces our loss overall and gives us an opportunity right now to lose less money or possibly make money on the trade.

And if OIH does continue to move lower, we would only lose about 315 versus about 516 on the other original trade that we had. This adjustment is meant to protect the position, give us an opportunity to possibly make some money if we can do it right and make another change, but overall, protect the position, reduce our loss and keep those losses to a minimum going forward.

We didn't add any additional margin. It shouldn’t have added any additional margin because your overall loss is less. Even though we added contract on the call side, our overall loss is less because of the structure of the trade, so it should not have added any more margin, in fact in some cases, it should reduce your margin exposure and your broker’s exposure in the trade.

I know that was a lot of information and a huge day of trading, but as always, I hope that you guys enjoy these videos. Please add your comments and questions and let me know if you like this. Let me know if you have any comments or questions. There’s a lot of trades in here, so give me time to get back to everyone because I know I’ve already gotten a bombardment of questions today which is great and everyone’s excited about all these trades.

And also, feel free to share this on social media. Help spread the word about what we’re doing here at Option Alpha. Tell all your friends. Share it on Facebook and Twitter and YouTube. Let’s get this word out about what we’re trying to do and helping traders make smarter trades in the marketplace, knowing what the risk and reward are. I think it’s going to be better for all of us. And obviously, we don’t compete against each other, so we can all help each other out.

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About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.