Closing Option Strangles ($392 Profits)

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Option strangles: In tonight's video update, we’re going to go through our two most recent closing trades that we had both, one today, Tuesday, July 19, and then also the one that we had yesterday, Monday, July 18. As always, I try to get out these video updates every single night. But sometimes, if we have just one single loan closing trade, I won't send out a video update for that one.

That’s what happened last night, Monday with a trade that we had on MON. It was just one single trade that we closed out of. And again, we just didn’t want to waste the time to do a video and get that out. We’ll obviously cover those and make sure that we get back on track and do anything that we miss if we miss a single day.

Today, we did have a closing trade in SLV. I want to cover this one first. This was part of our strangle set that we had, that we closed out of here today in SLV. Mainly, what we see now is implied volatility starting to decay in silver and gold which has been excellent for the positions that we have on.

In this case, we took off the last set of strangles that we added at the 19 strikes. Again, we just bought back both the 19 calls and puts, and we bought those back for $119, took out of the market $156 of potential profit.

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Again, what’s working here with silver is just this big collapse in implied volatility. That’s where we’re getting a lot of this premium left. Now, what we need to see though is we need to see the actual stock price come down just a little bit as well which I think we might see. I think there's a good chance that sometime between now and August expiration, we’re going to see silver come back down around the 18 level and test that level if it’s going to go higher.

I do believe that we’re going to have an excellent opportunity here to close out of the rest of our position in the future. We’re just legging out one set of strangles at a time. Now, if you remember, what we did in silver is we went ahead and added strangles in sets or laddering out in time. We went ahead and added the 17 strangles, then, later on, we added the 18 ½, then, later on, we added the 19s.

Now, what we’re left with is just the 17 straddles and the 18 ½ straddles since what that does is it gives us a position or a payoff diagram that looks like this. I mean, this is what it looks like. It looks like a big wide strangle, but it’s the 17 straddles and the 18 ½ straddles. And again, the stock is right where we want it to be right now with the remaining positions.

It would just be nice to see this thing come back down just a little bit and for us to be able to take some money off the table for those. We’ll naturally start managing the trade as silver drops if it does, and if it doesn’t, then we’ll continue to adjust the position, but that won’t happen until later on this month.

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The other trade that we got out of yesterday, the trade that we exited on Monday was the inside legs of our iron condor position on MON. We went ahead and just bought back the inside strangle which is the 105 call and the 100 put. Implied volatility on MON has come down. That’s been great. We bought it back for a $675 debit.

But remember, we sold this thing for $910. We did this trade as part of one of our live trades which will apparently be published now that this thing is done and closed so that everyone can see it. We don't post any of those live trades (just FYI) until the full trade has been completed and closed or it’s been about 30 days from trade entry. We never do that publicly.

Just naturally keep the integrity of the pro and elite membership here with you guys. But we did go ahead and close this thing out, just the inside legs. That leaves us with a $235 profit on that end of the trade. The reason that we closed out of the trade is that there’s a lot of chat or a lot of talk about MON and the bid price that got raised here for MON to $125 from I believe bears who're trying to buy them out. The stock has been on a nice little rally.

And as a result of that, we've also seen implied volatility drop dramatically. Now, it’s down to the 50th level from yesterday. It dropped, even more, today. And the stock continues to rally at one point today. The stock was up around $110. It’s rallying out of our potential zone that we wanted it to be in. Anything that you would’ve gotten out of it today, apparently you would’ve still taken some money off the table.

And what we’re going to do in this case… And this is a little bit different. But what we’re going to do in this instance is we left on these long legs because they do have some value left. And with 30 days to go until expiration, we’ve made a little bit of money on this long $125 call option. When we exited this trade, this thing was only worth about $10.

It’s gone up a little bit in value not too much. But considering the bid on the table at $125, we could potentially be well-positioned for the stock to move dramatically if this proposal gets accepted in the August expiration cycle. And if it does, then this thing is going to be worth a lot of money. Hopefully, that happens early, and we can get out of this trade and savor some premium. Then, in that case, this potential profit that we had might go up a little bit more.

But we just assumed right now for overall profit potential that we didn't make anything with these long legs. We don't think that we make anything on this. If we do, then we’ll obviously adjust this to make sure that we complete the trade out and close everything out. Those were the two trades that we had over the last two days.

Hopefully, that helps out with you guys and with your orders. As always, if you have any comments or questions, please ask them in the comment section right below. 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.