Trade Details & Summary

GDX Strangle (LIVE Closing Trade)

Gold has been an incredible trading vehicle for us this past month and today we close another set of strangles in GDX to generate some income for the portfolio. ETF has remained fairly range-bound while IV has dropped considerably which helped this position.


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In this video, we're going to go through a closing trade. Hopefully, we can get filled here in GDX which is our gold strangle position. You'll notice here on our position statement that we have currently a position in GDX. We sold some strangles.

These are kind of what is remaining for our portfolio in April for April expiration. We sold this strangles back on 2/22. That's when we entered the position and began the position by selling this strangles, each of them, the three contracts that we entered for $60 apiece. They're now trading for about $24 apiece.

Now, the reason that we're going in here and trying to exit these trades is that we talk a lot about exiting trades early once the value of these options goes down by 50%. At least, that's our guideline for strangles. And again, you can find all of the guidelines that we have on optionalpha.com in the PDF guides and checklist section for the platform.

But we usually like to get these off at about 50% of the initial premium that we receive. We take things off early and minimize our risk and maximize our win rate. That means that we'd be taking this thing off at, at least a $.30 credit.

Well, today with the market move lower, they've started to trade under $.30. Now, they're just beyond our profit targets, so we need to be active in going in and getting these trades off. And you can see numbers moving around the market is moving and very active.

And again, what we're trying to do here is just reduce the longevity or duration that we have in trades. There are still 25 days to go in this expiration cycle. We could wait and hold onto these things for another 25 days and hope we make the entire $60 premium, or we could take it off right now, guarantee a win, and lock in a hundred plus dollar winner on our hands for this small little trade.

We'll look here at GDX so that you can see what's happened here with the security. Like I said, we entered this trade back on 2/22 which is right here. At the time that we entered it, the stock moved 100% against us, meaning it moved against our call strikes on the top side.

It did not stay range bound as much as we would've liked, but what you'll notice is that implied volatility dropped from around the 80th percentile down to around the 50th.

That drop in implied volatility is what fueled the decay in the value of the options. We talk a lot about this here at Option Alpha that that is our edge. It's directionally getting the implied volatility piece more so than the directional move in the underlying stock.

And in this case with GDX, it's an excellent example of that because all of the value of this option got decayed and sucked out of it because implied volatility dropped. The stock moved against us. It did not move sideways. It moved basically from $18 up to around $21.

And that's a huge move for a teen type stock, low teens, mid teens type stock. The directional part, we did not get right. And that's okay. We got the volatility part right, and that's what made the difference in this case.

To go ahead and close out this order, we're just going to click right on the strangles that we have inside Thinkorswim, and then we're going to go over to closing order, go down to buy that three strangles back. You can see that the price naturally comes up to the current price which is $25 per strangle.

That's okay. We're good with that. That's below our profit targets. We're going to go ahead and quickly get this order in. See if we can get filled at that position quick. And you can see that order is now working here. The market is trading right at where we want it to.

It's just going to be a little bit of time, hopefully not too long of a time between the time we entered this order at 11:15 and the time that we get filled. We'll pause this video, come back here in a little bit. Hopefully, we got filled, and it doesn't take too long. But again, we want to be patient with our orders.

You don't want to change them too much. You want to leave them out there and let them work for a little bit. See if it can get filled, and we can get a buy. And if we can't get filled, we'll come back in here and adjust the order here in a little bit.

Alright, we're back here a little bit after we just paused that video. And you can see here now it's about 11:29, so not too much longer after we entered that order for GDX. We did get filled and are out at a $25 debit. That's now excellent.

That locks in our profit for GDX. GDX is now off of our trade screen and trade grid, and we're onto the next trade. As always, hopefully, these live trading alerts and videos help out. If you have any comments or questions, please ask them right below. And until next time! Happy trading!

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