Lesson Overview

6 Trades At Expiration

A look inside one of expiration day updates for members we'll cover 6 trades both opening and closing. With this longer tutorial we cover vertical debit spreads, calendars, iron condors and credit spreads. In particular we want you to focus on our closing trade in YHOO. Even though YHOO stock went 100% against us this month we were able to turn this full loser into a big winner. In our opinion it's being able to make adjustments like this that separates the good traders from the great traders.

Show Video Transcript +

Welcome back to the video recap that we do here each and every night on the membership side of our blog. Going over all of the trades that we made, both opening, closing, adjusting, whatever the case is, so you guys know exactly what we're doing and how we're doing it.

And today we're going to go over all the trades that we made on Friday for expiration, the 19th of September. Had a very busy day opening some new trades and then also closing out and going over some of the trades that expired.

So, some of these that you can see down here- and I'll just kind of tag one real quick- but you can see that they expired. These were not trades that we necessarily physically closed out of so we didn't enter orders to close these out, but they did expire either profitable or losers, or whatever the case is.

So we're going to go over those, so you guys know all those and have a good idea. The first one that we're going to go over tonight is Verizon.

So I'm going to go over some of these opening orders quickly because they are debit-spreads and calendars which we've gone over before and I want to take more time in tonight's video going through some of the expired and expiration options.

But Verizon, what we did here in Verizon is trying to add to our call-debit side of our portfolio. As we got through expiration, we realized that our beta shifted pretty quickly.

So we had a lot of trades in expiration that were bullish trades or neutral trades, and as we got through expiration, we realized that we had a very heavily tilted bearish portfolio.

So, we were tilted toward the bearish side which is not necessarily bad considering where the market is because I think it will head lower. But it doesn't help us because we'd like to have positions on both sides of the market, right?

We don't want to be one sided and kind of lop sided in our trading. And in this case, what we did with Verizon has we liked the Verizon setup. It had a nice kind of technical cross. It had some MACD and CCI kind of crosses, which were nice.

So I'll go over those here in a second. But, logistically, what we did here is did the October 49-52.5, I know those are weird strikes, 49-52.5 call-spread for a 1-25 debit, which I like because our total max gain is a little bit more.

So again, here's a look at where Verizon is. You can see that it's continuing to move up with the general market. If we go here and kind of load up our studies, then what you'll see is that it did have a very-very nice and very clean signal.

Both the CCI crossed just a couple of days ago and then a nice MACD cross which we talked about before. So, just using some of these technicals not as the end-all, but as giving us a little bit of understanding of where the stock might go in the future.

So I do like this trade; implied volatility very-very low; the 19th percentile. Meaning that we can't do anything but calendars and debit-spreads and ratios, things like that.

For Oracle, we went ahead and did a calendar. The Nov-October, so again, with these calendars we are selling the front month which is October; buying the back month which is November, but all dealing with the same strike and the same side being the 39 put.

So with the calendar in Oracle, we sold the 39 puts for October and bought the 39 puts for November. Paid a very small debit, did this trade very small for 32 cents. What that does is puts us in a position where we do want Oracle to head lower, between now and October expiration, we want Oracle to head lower.

But because of the strikes we selected at 39 ... was it 39? Yes, 39, I don't know why I said 32. Because of the strikes we selected at 39, we'd ideally like to see it kind of sell right here around 39.

Now with the premium that we had for this trade, and I'll go here to the analyze tab so you guys can see this. But with the premium that we had for this trade, what that did was give us a break-even point that's higher than 40 and right about 37.5.

So, even though we'd ideally like to see Oracle trade right around 39, that's where we get the most money from this calendar spread. We can make money anywhere between about 37.5 and a little over 40.

So we go back to the chart here, and you can see that a little over 40 is right about in this range and about 37.5 is right here. So, that's our big profit window. That's why I like these calendars in markets like this.

The reason that we did a calendar, obviously, is because implied volatility is very low. Calendars then take advantage of those low implied volatility markets when IV rankly is not so high.

The last trade that we opened today was UUP. And I've been waiting for about two weeks now to get into this trade. I really-really like this trade setup, but even though I like this trade setup, I still did it small, still following all my rules.

I wish, deep down in my trading bones as a rodeo cowboy trying to do this thing and make it big, right? As we all are. I wanted to do this trade bigger, but I know that I can't do this trade bigger even though I really-really like this setup.

So when we go to the chart here, you'll have probably kind of lick your chops as well, once you see it, just how ridiculous the dollar index has been lately and where it could go in the future.

Again, logistically, what we did with UUP is bought the October 23-22 put-spread, very-very small trade and paid about 52 cents in debit for this trade.

Now we go to the chart of UUP which is the bullish dollar index, and you can see this thing has gone completely parabolic in the last two months. Just a ridiculous move.

As with things like FXE and FXY that have made very similar moves, just in the opposite direction, the Great-British pound, and FXB which we had a trade on that we closed out.

So, those are all very-very extreme moves that these things have had. And look at just the trading range that it was in, kind of the four or five months before that, right?

I mean not moving and then massive-massive break-out. Now, now that that's happened, though, I think what we're going to see is we're going to see a pretty hard retracement. Okay, so after these moves like this there's nothing holding this market up except for the initial buying thrust.

So once all the guys that owned UUP down here start to realize the price is now way up here, they're going to hit the sell button, and that's going to cause all of this stuff to come back down at least somewhere into the 22 range.

So that's what we're hoping for. But ideally, we just need the stock to close below 22.5 for us to make any money on this trade, which is real, very-very close to where this stock is trading right now, okay? So I like that UUP position going forward in October.

All right, so some of the closing trades that we made, and these again, some of these are expired, and some of these are closing trades. We did go ahead like I just said, sell out of our FXB, which is very similar to UUP just in the opposite.

The FXB is the Great-British pound ETF, and we were long the 157-159 call-spread. Sold that back to the market for a 160 credit. On just a one-lot took in a $49 profit which is great.

That's all we were looking for as a quick move higher in FXB, and you can see here- let me just go to the chart- you can see in FXB that we did have that kind of quick move higher from the lows.

So when we had bought it down here, we wanted to see just any type of move higher in FXB, which is the Great-British pound ETF, and that's exactly what we got, right? We got exactly what we wanted out of the market. You got to take money off the table.

And at that point, there's not a lot of premium left in this thing, so you've got to exit the trade; get your money off the table and get out of the trade. It was a very small trade but a very profitable trade that's what we wanted.

We did it small originally because there's just very-very light liquidity in this thing, so we didn't want to be a big fish in a small pond type of thing trading too many shares and contracts.

The other trade we got out of, and thankfully we did before the end of the day is we hedged out of our iron condor in IWM. So we had both the call-side which was the 117 and 119. And we also had the put-side at 114-112.

Now, during the day on Friday as the market was moving lower, we decided just to go ahead and buy back our put-side at about a 10 cent debit. And by doing this, that got us out of exposure from the market closing in the money, which it did.

It closed below 114, so it closed just slightly in the money depending on what credits you would have gotten you would have been okay or potentially a max-loss if you didn't take in enough credit. And that's what we're trying to avoid.

We weren't trying to get greedy here. Ideally, we would have loved to have this thing completely expire worthlessly and take in another $30 in profit. But we did have to buy back just the short put-spread and what we did is we just went ahead and let the short call-spread that we originally sold, the 117-119 completely expire worthlessly.

Overall, after all the adjustments that we made to this trade, we took in a 192 profit, after all the adjustments. So again, very-very good trade, very-very happy with that trade. Same thing with Yahoo.

We had hedged out of most of our Yahoo for September. We're not talking about our October strangle that we've already closed out of for a profit. But this is our left over September options. We had the 38-37 puts, and we had the 35-34 puts.

Both of those expired worthless after all the adjustments in our September options- this is everything- buying it back, selling stuff, everything. We ended up taking a nice little $100 profit on everything.

And what I like about this trade more than anything else, and although we don't have too much time to go over it, is that our initial position in Yahoo for September was a short call-spread.

So we originally had a short call spread against Yahoo in September and noticed that for the entire month of September, Yahoo went completely against us.

So the fact that we were able to then make adjustments to this trade, add the put-side, roll that put-side up once, bank some profits, and make very nimble and smart decisions about how we adjusted this trade.

We were then able to salvage a trade that would have gone completely to full loss; went 100% against us and turned it 100% around into a $100 profit. And I know I said 100 a lot. 100%, $100 profit, 100% against us, whatever.

But that just really goes to show you that once you learn how to make adjustments, you can take trades that go completely against you and turn them all the way around, and Yahoo is the premier case study on that.

We'll be doing a bigger video tutorial on Yahoo and some of these other ones here in the next couple months, just as more and more case studies of making adjustments and doing them well.

All right, and then the last one we let expire but we did adjust as well is our Netflix trade. So this is one that we adjusted a long time ago, probably about three or four weeks ago we made an adjustment to Netflix.

That helped salvage a massive-massive loss. So we could have lost more than $500 on Netflix. We're able to with this one adjustment whittle that down to a 142 loss, which it still isn't great to lose money but it is better that a $500 plus loss in Netflix.

With Netflix, we had originally bought a vertical put-spread the 4-30, 4-25 put-spread in Netflix. Again, I'll just go to Netflix so you guys can see what I'm talking about here. And here's Netflix.

So we bought the 4-35, 4-25 put-spread in Netflix and you can see those two strikes are right here. Which means that for the entire month of September and most of August, Netflix went completely against us just like Yahoo, okay?

So, 100% against our position. We wanted Netflix to go from here down, and it went practically from there, straight up. I mean it never once really moved in the direction that we thought it was going to move. So what did we do?

We went ahead and went back into the market and sold a very-very-very wide put-spread; created a synthetic short put in Netflix. We sold the 4-35 puts, bought the 3-60 puts, and took in a massive credit on those.

That's what helped to reduce that loss down to 142 after all adjustments in Netflix. So again, as the market was rallying higher, what we did is went back in here and sold puts below the market. So we sold puts below the market down here.

And so as the market is moving higher, as Netflix is moving higher, these things decay in value and make money which reduces the loss of the original position, okay? So, that's one of the ways that you can do it.

We've talked about that some times before in the past, but this is just another example of how you can do it. So, I hope that answers a lot of questions for you guys.

Like I said, this was a little bit longer video because it was expiration, but we're on to October now. Lots of opportunities for October. I think we're going to see implied volatility go higher. I think we're going to see the market start to move lower which is going to create a lot of opportunities.

Plus, we've got earnings on the horizon which are always fun to trade around. So as always, if you guys have any comments or questions about these trades or any of the trades that we've done, please add them right below here in the comment section.

I'll get back to all of those tonight or tomorrow before the open. And if you're watching this video on YouTube someplace, you just have to understand that you're getting these alerts and all of these videos about 15 days after they're sent out to just our members.

So if you want alerts like this and a video just like this every night that goes over all of the trades that we make in detail, you've got to sign up at OptionAlpha.com. Start our free trial. Go ahead and kick the tires. See if this is something that could make you a smarter trader. Happy trading.

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