Trade Details & Summary

GDX Iron Butterfly (LIVE Closing Trade)

Gold jumped nearly 10% today which actually gave us the perfect opportunity to close our iron butterfly option trade in GDX for a $190+ profit.

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In this live trading video, we're going to try to get out of our GDX Iron Butterfly position that we have. This is a look here at my thinkorswim platform again. These are all live, real-time trades, no fake money, paper money anything like that.

This is a GDX trade that we got into a little while back and implied volatility has been high in gold with the recent move. Implied volatility has consistently gone down, and pretty much the stock has stayed range bound around about 20.

Now, a little while back we sent out an alert to our members to get into this GDX Iron Butterfly. It was actually on three four that we got into this trade in GDX. Again, if we go back to our screen here, three four would be right about here. This day.

Let me just zoom in here so you guys can see. Right here kind of at the top of the market or very near to the top of the market, that's when we got into this Iron Butterfly trade in GDX.

Again, implied volatility was high that day around the 80th percentile. Has now consistently dropped to around the 52nd rank percentile, so it's been a good move down in implied volatility which is what we wanted to see.

The stock more or less has stayed sideways which again is exactly what we wanted to see. When we look at our position here, what you can see is that we got into this trade as I said back there in March. We had sold each of these Iron Butterflies for 249, basically $250.

They're not trading for about $114 each. We're looking at about a $400 profit on this trade and this kind of set of Iron Butterflies. Again, thinkorswim tags these as Iron Condors, but we know that they're Iron Butterflies because we have the same short strike at 20 on either side.

Then what we did is we bought options further out on either end, so this is what our payoff diagram looks like. You can see everything is focused right around here around the 20 strike. We went ahead and sold options, both a call and a put on that at the 20 strike.

Then we bought the 15 puts. We bought the 25 puts just to give us some defined risk and give us some balance here in this trade. Again, took in a nice big credit. We've made the vast majority of the money that we can make on this trade.

Now, again we could hold this trade for another nine days because it's coming up on expiration. We could obviously do that, but in our opinion, it's always best to close out some of these trades early and bank the profits. We're coming up on expiration.

We're cleaning out our portfolio right now. We don't have too many trades that are left on and working, so we're going to go ahead and take this position off.

What's different about this trade is that we're only going to close out the short strikes at 20. We're only going to buy back the inside straddle that we have at the 20 strike. The reason that we're going to do that is that these are the only contracts that have any value left. There's no sense.

If you look at it, we bought the 25 calls and the 15 puts. Those are protection. Those were kind of our hedge against a big move in GDX. These options right now are worth about a dollar each. To sell them for a buck and pay the commission cost, which is more than a dollar for us, about $1.25 to get out of each of those contract.

It's not worth it for us after commissions to get out of those. Those are out of the money far on either end. They're going to expire worthlessly. We don't need to close out of those contract.

We can be a little bit selective here in closing out of this position in GDX and just leave those two long options. Again, because they're worthless. They're far out of the money. Not going to get hid. Not going to turn into anything. It's not worth closing out those trades.

Again, all we're going to do is just close out the inside legs which are straddle at 20. I'm just going to right click on the Iron Condor order. When you go down to closing, you can see we usually would close out the entire thing for 115. Now, that would fill each and every one of these legs.

We don't need to do that. We just want to buy back the inside legs which are the straddle at the 20 strike. If I hit the 20 strike straddle, you can see I'm just buying back those inside legs. I'm not doing anything else beyond that.

Right now it's trading about 118. We could try to shoot for something a little bit lower, but we've got a pretty good profit here in GDX, so we're going to go ahead and try to fill it right at 118.

See if we can't get this thing in and filled immediately. I don't think it'll take too long because the market is trading right at those strikes. Those are going to be the strike prices that have kind of high liquidity and a large number of people that are trading them right now.

If we scroll down here, you can see that there's already been some good activity in both of these strikes early this morning. It's only about an hour after the market opened. We've already got 70 contracts, and 52 contracts filled for these respectively. I don't think it'll take much time.

We'll pause this video here. We placed this order at 10:48, so we'll see how long it takes to get filled and out of those contracts. We're back here, and we did get filled out of that GDX straddle on the inside.

It took a little bit longer than I thought, but we did get filled right at the 118 price that we had put in here. You can see that fill order is in here, and just remember we still are left now with these long options on either end.

Again, these were protection. They're not worth any amount of money. We still made an overall net profit of around $400 on this trade, so we'll let these options expire worthlessly. They act as little lottery tickets on either end, so if gold makes an insane move in the next nine days, these things will pay out.

Don't count on it. We'll just leave them here. They'll expire. We're not going to close them out. Hopefully, this was an excellent little example of how to close out of an Iron Butterfly spread.

In particular how to leg out of it in a smart way so that you don't waste commissions by buying back some of these long options on either end that just aren't worth any money.

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