Trade Details & Summary

GDX Iron Butterfly (LIVE Closing Trade Example)

In order to avoid the gamma risk that comes with options expiration week, we took off our GDX iron butterfly for a $330+ profit.

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In this video we're going to go through a closing trade that we're going to make here in our position in GDX, actually, just one of our positions, as we get closer to May expirations. You can see I have the GDX position open here.

We've done a couple of different iron condors. They're iron butterflies because we have the same short strikes in both cases. Think or Swim just doesn't recognize them as an iron butterfly.

Both positions have been working out well. Our May position, which only has three days until expiration because now we're at expiration week, has started to decay in value pretty quickly this week and now we have an opportunity to take things off and make a nice big profit.

In this case with GDX, the stock is trading right at our short strikes for the May expiration. May expiration, we have the iron butterfly that's centered around 25. You can see GDX is trading right here.

We could wait a little bit longer and potentially make a little bit more money if we pin the stock exactly at 25. The next three days is when we have a lot of gamma risk which means that the position's going to move in value very, very quickly over the next three days.

Given that the actual stock itself had been all over the place last week, I don't want to run the risk of giving up what we have here in this position. I think the more prudent decision here is taking money off the table and running with it.

In this case with GDX, we're looking about $330 profit on this trade that we've held onto for a couple of weeks now. I'm comfortable with going ahead and taking this trade off. In this case with GDX what you look at here when you look at pricing, is you can see that the entire iron butterfly is trading for about $100.

We sold each of these for $211. They're trading for about $100 now. Now that we're at expiration week what you'll also notice is that these far out of the money long options are practically worthless.

If we went ahead and placed an order to actually close out of this thing we could close out of the entire thing but we might have trouble trying to get these filled, and therefore, the rest of the trade might have trouble trying to get filled because there's likely not a lot of activity these far out of the money hedges.

The 30 calls, which are $5 above the 20 puts, which are $5 below, those are not going to have a lot of activity because they're likely going to expire worthlessly. Frankly, we're going to spend more money in commissions to close them out and take a dollar of value out of the contracts.

In this case what we're going to do is we're just going to go ahead and close our inside short strikes, which is the 25 straddle. When I right click on this, and I go down to create closing order, I'm only going to buy back the straddle at 25.

I'm going to buy the 25 call and put. Right now that's trading at about $1.03, $1.02 or so. I'm just going to go ahead and place that order, send it into the market. Should get filled pretty quickly because we are trading the at the money strikes.

You can see what I was talking about earlier. There's no activity out here on the put side. On the 30 call side, there's no activity right now, but there's a lot of volume on open interest already. It's only about 10 minutes after the market opened on, what is it today, Tuesday here the 17th.

This trade should get filled pretty quickly here. We'll pause the video and come back, but we do have this order working. We started the order placed at 9:48 in the morning. It took a little bit longer than expected, but we did end up getting filled here with our GDX position at about 12:37 in the afternoon.

GDX moved up a little bit and rallied quickly, but then faded back down. In this case, we didn't get it filled as fast as we wanted, not because the markets weren't liquid. The markets were extremely liquid, just that stock moved against us.

I think the key here is that sometimes you have to set your price and hold firm with it and not adjust it all too much, especially as you get closer to expiration.

Time is really on your side as an option seller. Even if the market's moving and stock maybe moving up or down from where you placed your original entry trade you can still get it filled with that price; you just have to be patient a little bit longer.

In this case, we are out of the GDX position by buying back the embedded strangle, or I'm sorry, straddle, and that gives us a nice big profit on this trade for expiration.

As always, hope you guys enjoy these videos. If you have any comments or questions, please ask them in the comment section right below. Until next time, happy trading.

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