Trade Details & Summary

XOP Strangle (LIVE Opening Trade)

XOP has been a favorite trading vehicle for us and today we'll continue to "stack" or "ladder" into this short premium position even though we already have a profitable trade working.


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  • 1K is probably too low to be honest. You’d need more like 3-5k to really start.

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In today's video, we're going to look at a new strangle entry in XOP. At the time of this video recording, it's about noon on East Coast time, markets are trading - They've been all over the place today, they were down earlier, popped back up towards the later morning and are now drifting lower, oil continues to be one of the big stories right now, and XOP has excellent implied volatility.

When we look at our IV percentile, it has about implied volatility in the 71st percentile, so that's pretty good. It's higher than where it is historical. Going back over the last year, it's higher. And we already have one position in XOP, and we're going to start today by building out another position in the security.

You can see down here in the bottom of your screen, I've toggled open the XOP strangle that we currently have for March. These have about 28 days to go until expiration. And we sold our first set of strangles in XOP for about $88.

They're now trading at $65. We've got a nice $80 profit on these, but we're not going to adjust this one just yet even though the stock is trading at around $23, $23 1/2. We're going just to stack or layer on another set of strangles on top. And this is something I like to do often because I don't always like to throw all of my positions in at one time.

This is what our current strangle looks like. Again, XOP is trading about here, $23 1/2 and our breakeven point to the downside is about $22. We still have like $3 1/2 to go. But you'll notice our call side is far out of the money. Our breakeven point on that side is about $34.

We've got a lot of room to add a new strangle on top. And what we're going to do is look to add a new strangle right on top of this one that looks like this. It's a new strangle that's re-centered around where the stock is trading right now.

If we go in and just this simulated trade, so you can see what we're looking at here, we're going to go down to the March contracts which are 28 days to go here, and we're going to reset the probabilities with this trade.

What I mean by that is we're going to target a trade that's got about a 70% chance of success. In this case, we're going to look at selling the 19 puts down below the market. Those have about a 15% chance of being in the money. And then we're going to look at selling the 27 calls above the market.

Again, those have about a 15% chance of being in the money. The in between range or the likelihood that the stock closes somewhere between 27 and 19 is about a 70% chance of success, so that fits well within our wheelhouse of what we typically like to do here at Option Alpha.

Right now, what I'm going to do is I'm just going to left-click on the 19 puts, and then I'm also going to hold down, at least on my keyboard, hold down CTRL and left-click on the 27 calls. And what that's going to do is that's going to bring up the order dialogue down below.

If I can get this thing to move up, (there we go) it's going to put up the order dialog box to sell an additional set of these 27 calls, 19 puts. And right now, the credit that you can get is about $59. That's live market right now.

We made the original trade at about three contracts, and we're just going to scale this one up as well and make a couple of more contracts. We're going to try to make three more contracts here and leg into it. Now you can see this is what our new position looks like if we were to enter this.

And again, this is all simulated. Let me toggle this off here real quick. Okay, here's our position, pre-additional trade on top. That was our breakeven point right here around 20. Once I add this trade on, you can see this is where our original breakeven point was.

Now with this trade on top, we're adding a new premium to the portfolio which is good, but we also move our breakeven point a little bit closer to 19, to take into account the fact that the stocks already moved a little bit lower.

Now, you can see the new resulting combined position is very centered, very symmetric. That's what we want to see. We're going try just to fill it right at the market price, $59, to get that one in. We're going to hit confirm and send.

And you can see the margin required to do this position is only about $715. A small position, even though we're making three contracts. That's because we already have a position in XOP. We'll let that working order get in there. You can see we've got another one in there to close out another trade today.

I'll come back here to this video here in a second once we get that thing filled. Alright, we're back here, and it looks like our order finally got filled. It took a little bit actually for the order to get filled, about an hour or so her, but a little patience as always is a virtue.

Now, we are into that additional strangle in XOP, and we'll properly manage the position for the rest of the expiration cycle as needed. As always, if you guys have any comments or questions on this trade or any of the live trading examples that we have here at Option Alpha, please add them in the comment box right below. And until next time! Happy trading!

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