GDX Strangle (LIVE Opening Trade)

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Strangle: And in this video, I want to talk about a new trade entry that we're going to try and do here in GDX. It's about 15 minutes before the close of the day that we're recording this. This is a live real-time stuff. Gold has been just on like a huge terror recently.

And we've made some decent money trading implied volatility over the last month and a half in gold even though mostly gold stocks like GDX, GLD had a huge run-up. In this case, right now, we already have in our portfolio - Let me just move this up, so you can see it.

We already have on three of the strangles in GDX that we started to enter a couple of days ago. We have the 14 1/2 puts, the 21 1/2 calls. And you can see with the stock trading right about or just under 19; we still have a lot of room in our breakeven points to make money.

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But what we're going to do here is we're going to stack another trade right on top. The way that I like to do this is again, all of my trades are around the 70% chance success level, and so what we want to do is we want to find options on either side of where GLD is trading now that it give us an overall chance of success around 70%.

In this case, we want to sell options at about the 15% chance of being in the money on either side. You can see here these 22 calls have about a 15% chance of being in the money and the 16 puts have about a 17%, 18% chance of being in the money. We don't want to go too far out.

If go out to the 15 1/2 puts, we're at about a 13% chance. Okay, maybe we would take a little bit more risk on this side and try to get something around 70%.

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In this case, what we're going to do is we're going just to build an order here that have already pre-populated that sells the strangle around where GLD, GDX is trading. It sells the 16 puts and then it sells the 22 calls above the market.

It should give us a probability of success right around 69%, 70% once we factor in the breakeven point on our credit. We're going to take in a nice credit of about $53. In this case, we're going to scale up just the two contracts.

And again, what I like to do with most of my positions, as you're starting to see a lot of these video examples, is that I don't enter all of the positions at one time. I won't enter ten contracts at one time. I'll go in, and I'll enter two and then three etc. and scale into the position.

We like this trade because implied volatility is super high it's in the 80th percentile. We want to do the more aggressive type strategy, the straddles, and the strangles. And with GDX being just a very cheap stock in the mid-teens to 20s, the margin that's carried on this thing is not too much at all.

You can see, to do this trade, we're only carrying about $380 in margin, and we could potentially make about 106. It's not going to cost us a lot of margin because we already have that position on. I'm going to go ahead and place this order into the market and see if we can get it to fill real quick here before the close.

Yup, there it goes. It already filled quick before the close here today. You can see we've already made some profits on some other trades today. But now, we're into GDX for $53 credit.

Hopefully, that makes sense. What we'll try to do with this one is put it in working order to close it out at half of the credit received, so somewhere around $25, $26. That will be our target for this particular strangle in GDX.

And what we're hoping for is just basically the stock to move anywhere between our breakeven points at 16 and 22, so a huge, huge range for us in GDX. I like this trade a lot, and you can see that implied volatility gives us that opportunity to make such a wide range of trade and profit zone.

As always, I hope you guys enjoyed these videos. If you have any comments or questions, 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.