FXE Closing And Opening Option Trade Examples

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Option trade: In tonight's video, we're going to go over all the trades that we made for Monday, November 30th. Thanks so much for tuning in tonight. Hopefully, everyone had a great long Thanksgiving break, spent some time with family.

Last week was a short week, only had couple days of trading which you guys can obviously see right here inside the new trading alerts page. We kicked off this week with four new trades, two closing trades, and two opening trades. I want to go over first, the trades in FXE since we had a closing position and then we re-established a new position in FXE, and they were a little bit, different from one another. 

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The first closing trade that we're going to go over here is the closing of the credit spread that we had.  It was a bear's trade that we had in FXE, closed out of all seven of our December contracts that we had, anticipating that FXE would move down and hopefully implied volatility would drop in the process.

We close that out today just a little bit under our profit target here at $13, so we took in about $119 in profit on that trade. It was a nice trade. We didn't see that drop in implied volatility as much as we had thought as FXE dropped and that's why we got back into the trade.

What helped in this particular instance was the fact that we had sold the credit spread above the market and saw the market continue to fall over the last two weeks.  Now that the market has taken a dive, and is, I think maybe even a little bit lower, we decided to get back into FXE, this time in January with just a very neutral strangle.

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You can see here we out to January for these January contracts on FXE, wanted to do something a little bit neutral and also given ourselves as much of credit as we can to start building a position in FXE. We went ahead and sold the strangle for a $79 credit; we sold the 108 calls and the 99 puts.

This gives us an overall probability of success of around 68%, again still doing small allocation right now because what I'd like to do in January since it's a little bit further out right now, is start building a position here and things like FXE, OIH, USO, etc.

I'm doing this small, beginning with, only doing one strangle, anticipating that we could add to this position in the future and do another strangle and kind of sack or ladder these strangles out. Again, the reason we are going after this is that FXE right now has some of the highest implied volatility out there and so we want to sell premium when it's good.

The other two trades that we got are the ... one other trade that we got out of today is our POT Iron Butterfly. Went ahead and closed just the interior legs of this position. Again, the original strategy here was the Iron Butterfly. That's why I wanted to post it up here.

The closing order today was a strangle, and all we did today is close out of basically the interior short legs at 20, and we left the long legs on. Those long legs for POT, let me just go to the pricing tab here so you guys can see those. Those long legs for POT are far out, and they aren't worth any money.

You can see this one all the way out here is maybe worth a dollar on the 15 side, and then up here at 25, on the call side, it's maybe worth $2. It's not worth spending the commission to close those things out. They conserve as little long lottery tickets for us in POT.

All we wanted to do was close out of these short legs right here around 20, and that gets us pretty much the entire profit that we're looking for, locks us in and again leaves those long legs on for basically a lottery ticket. We did see a good drop in implied volatility here in POT, not a huge drop but it was a big enough drop, and you can see the stock pretty much move sideways from the time we entered the trade.

That's really what kind of help this position quickly turn into a nice profit of about $174 is what we took in on the POT trade. The other trade that we got into today was another strangle in EWZ. Again, EWZ has nice implied volatility, not as high as FXE but still over that 50th percentile that we're always looking for.

Did a little bit higher position size here in EWZ, just because we wanted to make this credit work for us. I don't anticipate adding too much to an EWZ type trade. I'd love to add more to an FXE trade that's a little bit higher implied volatility. That's why we did fewer contracts in FXE, a little bit more contracts in EWZ because we're just going to build the initial position in EWZ that's a little bit bigger.

Overall our probability of success here is about 70% on the EWZ trade, trying to go really far out here by selling the 26 calls above the market and the 19 puts below the market so you can see the drop down in EWZ today, and the pop in it implied volatility, our profit range is basically right here where I'm drawing these lines on the chart.

A nice wide range for the stock to move for the ETF to continue to fluctuate but still to see hopefully a nice drop in implied volatility as we near the January expiration cycle. As always, I hope you guys enjoyed these videos. If you have any comments or questions, please add them in the comment box right below here 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.