Trade Details & Summary

GDX Strangle (LIVE Opening Trade)

With gold's high IV we are getting into a new strangle with a 70% chance of success and a decent credit for selling option premium.


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In this video, I want to go through my thought process here as I look at entering a new trade in GDX. Recently, at the time of this video, gold has been on a real big move up the last month and a half or so. And we already have some positions in GDX and GLD and some of the other metal and ETF sectors.

We've been doing very well and actually, here's a look at our position statement right now for our GDX positions from March. You can see we've got varying contracts, varying strike prices. But with GDX trading about 18, 32 or so, our breakeven points are down around 14 1/2 and up around 22.

We've got a wide window of opportunity here to make money in GDX even for the next expiration month. We're down around 14 1/2 and up around 22. I mean, this is how wide our profit window is here for GDX right now. But we want to add some more positions to this. I like this premium.

I like this trade right now with implied volatility in the 79th percentile. We still want to be super, super aggressive in the strategies that we select, so no long option strategies. We want to focus mainly on the short premium type strategies like short strangles, short straddles, iron condors, iron butterflies if you're in an IRA account.

That's what we want to focus on here today. Right now, the market is open. It's about the middle of the afternoon here on the East Coast. We're going to enter a new position in GDX. Now like I said, we already have a position in the March contract so that you can see this live, real-time, real-money account, not paper.

We have the position arrow or signal here or this tag that we already have positions in March. March right now is 25 days out, so we want to start looking at possibly entering some trades in April. April is 53 days out, a little bit longer than what we necessarily want to see, but we have to start diversifying our portfolio out in contract months as well.

We've got a lot of positions overall, speaking not just GDX right now, in March and we need to start scaling some of our positions out to the next expiration cycle which is April. Now oddly enough, at the time of this video - And this is cool to learn. But April expiration for GDX which is 53 days to go, that's at 53 right there, April expiration for GDX just opened today.

What you're going to see is you're not going to see any open interest on days like this. And this is stuff I got comments on from some of our pro and elite members in the forum, is just asking, "Why haven't we seen any open interest even though we see volume?"

And that's because there's volume today, but the open interest doesn't track or show until next day. It tracks all of the volumes for that day and then it shows the next day's open interest.

Since these contracts just opened up, there's not going to be any open interest showing. That will all show tomorrow, so don't be worried about that. It shouldn't scare you away. You should just realize that that's happening.

In our case for GDX, we're out in the April contracts. We want to do what we always do and start selling options around a 70% chance of success. Now in my case, I'm going to skew this just a little bit bullish.

Not too much, but I'm going to skew it just a little bit bullish because the premium at the 15 strike puts is much better than the 14 strike puts. Usually, we would try to target something around the 15% chance of success on each side, but right now, the 14 puts - Because I like to do round numbers anyway if we can manage it at the 14, 15 versus the half contracts here.

If we can make the 15 contracts, those have a much higher premium than the 14 contracts at $18. We're going just to skew it just a little bit higher and sell the 19, mainly 20% probability of being in the money options on the put side and that's going to get us a little bit higher premium.

Now when we do this, we might have to counteract that by selling something maybe just a little bit further out of the money on the call side. In this case, where we would typically go after like the 22 puts, we might jump out here to around the 23 puts.

Again, these are going to be a little bit lower probability, but still a decent premium for these 23 calls out here. And then combined, that's going to give us about that 70% chance of success that we were initially looking at.

You can see the 19, basically 20% chance of being in the money on the downside, basically 10% chance of being in the money on the upside. We're looking at about a 70% prospect of success that the stock trades primarily between 23 and our 15 targeted strikes.

Now, we haven't entered this trade yet, so we're going to do it right now. We're going to go ahead, and we can just right-click and go over to the 15s, go down to sell, and then move over to strangle. Now, that's going to bring up an automatic order for the 15 puts and the 15 1/2 calls, but we want to adjust that call side to the 23 calls.

We're going to just scroll up here and adjust to the 23 calls. And you can see if you leave this little lockbox unchecked, it's going to automatically adjust that creditor that premium. $60 is pretty good. It's a round number premium. And we're just going to hit confirm and send here and just take a look at our position size.

Right now, the buying power effect that we have is only about $185, so we can scale this up and make a couple of contracts if we want to. Again, this is my position size based on my account size, so you can do what you need to for your portfolio. But I like the idea of scaling up this just a little bit more, taking a little bit more premium.

We're going to make three contracts to start. Again, it gives us a wide profit window between 23 and 15, so we're looking at basically here on GDX, and then 23 is actually off the chart, so huge, enormous profit potential.

And if implied volatility drops in any way, shape or form, then we're going to be out of this trade quick with a nice profit. And again, it gives us some exposure to some longer-term positions in GDX so that we can generate some income.

We're going to hit this trade at 60 and see if it goes in and fills real quick. And it actually did. It went in and filled quickly. You can see here that our credit received is $60. That was an automatic fill that went in here, middle of the day here in the afternoon.

Now, we're into this position in GDX. As always, I hope you guys enjoy these videos. If you have any comments or questions, please ask them right below. And until next time! Happy trading!

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