$100 Market Lesson I Learned Today

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Option trading lesson: In tonight's video, we're going to go over all the trades that we made on Tuesday, September 22nd. So, the first one that I want to go over tonight is ... well the first just quick closing trade that we had in Microsoft. So, Microsoft we closed out automatic working order to get out of that particular straddle.

Bought it back at 2.70 debit. Took a nice $95 profit on that one. On EWW, I know that when I sent out the alert, it said that we had made a nice profit on it. Actually, we hadn't. So this is where ... This is a lesson for me on just keeping track of my notes and not working too fast through trades to get them off.

But, actually, after I looked at everything, and I'll show you guys this here, we actually took a loss on EWW because we had rolled it and adjusted it a couple times. And, while rolling and of adjusting actually helped reduce the loss, we should have never really closed out of this position at the end of the day. 

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So, you know, I guess that's what happens. I mean, look, I'm mad at myself for doing this. But, you know, every once-in-a-while, I guess, one slips through the cracks. Took a 201 loss after all adjustments. Here's a look at EWW. We had entered the original position right around here or so when the market was going crazy.

It kind of fell, obviously, with the broad markets and then we had to make an adjustment and rolled into ... rolled into and adjusted into a strangle, or a straddle, right over the market. So, you can see here is our original opening position here. So 55/48 strangle ... I'm sorry, straddle around the market for September.

And then, what we decided to do when the market was going crazy, is we rolled down the CALL side down to the 48. We gave ourselves the 48 CALL and PUT spread, so that gave us the 48 strangle. And then, we rolled the entire thing out from September to October because it was kind of right up against expiration.

Nothing was really moving. Gave ourselves some more time. So, we did, in the process, take in a bunch of credits. But, honestly again, we should have never closed out this trade today. Had I kept better notes on what I was doing with this particular trade, than we would have left it go, because the market was moving in our direction and we shouldn't have closed out.

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So, at the end of the day, the lesson here, at least on my end that I learned, is that we've got to be a little bit more diligent with making sure that we're closing out all of the trades ... you know, factoring in everything that happened before. So, end of the day though, it was a net, difference of about 100 bucks.

Chalk it up to a nice lesson to the market, there you go market. And, we'll just move on. So, new trade that we entered today, one straddle in X. We had a couple other working orders just to get filled in them. I was trying to be a little aggressive on pricing. I mean, the market was down pretty big today.

Overall, portfolio was up a couple hundred dollars. It was definitely a nice day to see, you know, ourselves a little bit bearish tilt overall, and the market moving down. I so, we're definitely prepared for this. In fact, if it keeps going lower, that just means that we're going to keep making more money.

So, at the end of the day, I like where we sit, but that doesn't mean that we can't continue to add positions. And, we talked about this with elite members on the strategy call on Sunday night and so that's what we're going to try to do is continue to add some positions. X being one of those trades in US steal.

We sold the October. 12.5 PUT and CALL so that gives us the straddle right over the market at 12.5 for a total credit of 180. Now, again, if you can't do the straddle, that doesn't mean you can't do this trade. You can turn this into an Iron Butterfly. You can go ahead and buy maybe the 10 options on the PUT side, so you buy the 10 PUTs and then maybe you buy the 15 CALLS and that will give you protection on either end. It will make it an Iron Butterfly.

And so, you'll take in a little bit less of a premium than $180 credit because you'll have to buy these two options. But, you can trade that in any account that you possibly have. So, here's a look at the chart ... the trade tab here with our position in X and you can see, this is where we're kind of centering everything, right around 12.5.

You'll notice, we're a little bit, you know, slightly tilted bearish. Actually X fell a little bit into the close, but we're a little bit ... slightly tilted bullish, I'm sorry, because we want the stock to go a little bit higher. Now this isn't necessarily because we're bullish on X. It's just because we, as we look at our overall portfolio, we have a little bit of a bearish tilt already.

So, we could use a trade that's a little bit more neutral to bullish in nature. And, that's just trying to give us a little bit more overall balance. So again, that's nothing to do with whether we are directionally neutral or bearish or bullish on X. I mean, there's nothing in the charts that we see or in our reading in anything or there's nothing in the news.

We just need another bullish trade in our portfolio, and so we tilted this trade just slightly bullish to give us that additional exposure. And so, here's the chart here of X. You can see. And look, I mean it's a little bit of a rundown. Implied volatility's up around the 100th percentile.

I mean, you have to be super, super aggressive with trades like this because, you can't do a strangle way out. You have to do the straddle right in and, although it might be tough to do because it's, you know, it's hard to do something, you know, close to or at the money. This is the right trade to make in this scenario because, long term, this one's going to pay off much, much more because implied volatility is in the 100th percentile.

So, it also means that we're leaving room to add additional positions and contracts to X, just like we have done to other trades that we have. So, leave some room in your portfolio to add to this or stack another strangle or straddle on top of this in the coming weeks, okay? So, as always, I hope you guys enjoy these videos.

If you have any questions or comments, please let me know and until next time, happy trading.

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.