FCX Inverted Strangle Adjustment

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Inverted strangle: In tonight's video we're gonna be going over both the one trade that we made today, Monday August 10th. But also the trades that we made on Friday last week. Because I didn't have a chance to cover them this weekend. Which was crazy busy, so I wanted to make sure that I covered those as well.

As a quick update for those of you who don't know, that weren't on the strategy call or aren't elite members. I announced last night that we do have a new team member that will be joining OptionAlpha in April of next year. Now, this new team member obviously will be close to us. We love them to death already.

But unfortunately they're not gonna be able to participate in anyway shape or form in that, because that new team member is the new addition to our family. My beautiful wife is pregnant with our second child. We just found out on Sunday. So really big news, we're all very very excited about it. And obviously very excited to go through this process. 

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So any suggestions from parents with more than one kid out there on how hard or easy my life will get in the future. Please let me know. I am all open ears to hearing what everyone has to say about that. I've already heard from some people that have eight and nine kids. I'm just gonna ... you know one at a time. We'll let you know.

Maybe we'll get there; maybe we won't. But we're gonna get there one at a time, or hope to. So big news there. So lets start off tonight. Lets talk about the trade that we made today in FCX. So I mentioned this trade on the strategy call with elite members just the other night. We talked about rolling down our call.

Which is what we did today from the 14 strike down to the 10 and a half. And the whole point of doing this was that the 14 call was basically worthless. We sold for a pretty penny and now it's worthless. There's no point in holding it on. And this morning FCX opened much lower so we rolled it down to basically a strike that was just out of the money at 10 and a half.

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Well today, once FCX actually rallied and started moving, you can see the low today was about ten dollars and ten cents. But the stock turned all the way back around and closed up on the day. Up to $11.65. So it kind of moved almost 100% against us.

Had we been 20 minutes behind and not made that trade so early in the morning it would've been a different story, may be we wouldn't have made that adjustment. But it is what it is. The end result though is that with this new adjusting trade, where we roll down our call side from 14 down to 10 and a half.

You can see that the end result is that the stock is right now trading in dead center of the range that we want it to trade in. So it's trading exactly where we idealy want this stock to trade. And with 12, 11 days to go here in expiration, it's not too bad. I'm actually pretty happy that the stocks kind of trading in this range.

And sitting right about here. So that's not really too bad, it is what it is. But it's actually working out pretty well. So again we roll down the 14 to the 10 and a half. And so now we have the inverted 10 and a half call. Which is now below our 13 strike put. So we have a little bit of an inverted strangle here. But trying to add as much possible credit as we can along the way.

On Friday last week we did almost the same type of strategy, but in the opposite direction, with Pandora. So Pandora's our one lonely trade that we adjusted post earnings. That still is not working in our favor. The stock has continued to rally just a little bit each and every day. And so what we did was we rolled up.

In this case our put strikes from the 15 strike up to the 18 strike, to take in a nice big credit of fifty-nine cents. You can see the mechanics here are very very much the same. We're just doing the same thing just in different directions here with Pandora. So we had the 15 strike puts, which were here.

We now rolled those higher as the stoke has continued to move higher to the 18 strike puts. That's allowed us to take in an additional credit on the over all trade. And you can see with this Pandora trade, the stock is now just trading just outside of our ideal range.

Which is basically anywhere between 18 and about 14. So hopefully we should see Pandora maybe move down, whatever the case is.. The end result though is this is going to be the last adjustment that we possibly make to this trade. And we'll look to either take this trade off in the next week or so or maybe just before expiration next week.

We're not gonna try to carry this thing all the way to expiration. We're just gonna see. Maybe we might get a little move down in Pandora given the recent big rally that it's had. Some profit taking at these levels seems to be something that Pandora has done in the past. Up around 19 or so, it seems to fall from that level and not go much higher.

So we'll see if that continues as far as a trend. And maybe we get a move back down inside the range which would help out. As far as closing trades on Friday, we closed out of our automatic closing order got hit on our vertical SPY call credit spread. So the $2.11, $2.14 call credit spread.

Sold that out at just a little over 50% of max product at a 50% debit. So we bought that back and took in a nice hundred and twenty dollar profit, on that trade. And again really this is nothing more than just a trade that we had on and took advantage of the market moving down.

When the market moved down last week. And basically all of last week, these options that we had sold up in this range started to decay a little bit in value and that really helped us out. That allowed us to then see a nice drop in that premium, to the point at which we could start taking money off the table.

The other trade that we had, that we closed out of is just our remaining trade in Priceline. This is our hedge trade that went in the money. Our $13.80, $13.75 put spread. We bought it back for max value on that side of the trade. The result is that after all the adjusting that we did in price line, post earnings we ended up with $1.68 loss in that trade.

And this one kind of sticks because had we again been just maybe a little bit slower as opposed to a little bit faster. It just worked not in our favor at this time because the stock opened up much higher, rallied all the way up to $13.95 early in the morning on earnings. We had made a quick adjustment below the market but now the stock came all the way back inside that adjustment.

So it kind of backfired on us a little bit. Had the stock continued to move higher it would've been a really great adjustment to reduce risk. But you know the market's really random nobody knew that it was gonna move back in as quickly as it did. Which kind of goes to prove the whole random market theory even more.

Those are all the trades that we made over the last two days. Earnings should still be pretty heavy the next two days. But not as heavy as last week's so keep an eye out for those earnings alerts. Definitely keep and eye out for the earnings radar trading alert, that were sending out everyday. Just to let you know what we're looking at and what might be on the radar for earnings coming up that day.

As always if you guys have any questions at all please shoot me an email or let me know through the support desk right here on OptionAlpha and we'll talk to you guys soon. 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.