No Options Open Interest? Here’s Why It Happens

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Options open interest: In tonight's update, we're going to be talking about the one trade that we did make today, Monday, June 22nd. As we had talked about with premium members on the strategy call last night, we want to continue to build some positions and stocks and ETF's that had high implied volatility. FXE was definitely on our radar, and we want to get a trade in early this week. 

What's interesting is that last night when talking with premium members, the August contracts were not available yet. They opened up today, and today was the first of the year able to trade them.

We kind of talked strategy last night on the call about what we would do because there were no August contracts available, which kind of seemed a little weird. Now that they're available we want to go ahead and sell those contracts.

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options open interest

In this case with FXE, what we're doing is doing a straddle right over the market at one-twelve. So we're selling the one-twelve call, and one-twelve put on either side, right over where the market is. We're going out ten dollars on either end and buying the further out options as protection. This gives us an iron butterfly.

The order goes in as an Iron Condor, but it's an iron butterfly right over the market, taking in as much premium as possible while also keeping our margin in check and making this a rectifying trade. You can make this trade in any trading account. Doesn't have to be a portfolio margin or a reg t margin account. You can make it in your IRA, et cetera.

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In this case, we took in a nice healthy credit of three dollars and eighty-two cents. The credit that we took in of three dollars and eighty-two cents is now moving our break even point plus or minus three dollars and eighty-two cents above and below one-twelve. That's where we get our break-even points on the trade. Should be a pretty good high probability trade.

With FXE, implied volatility remains elevated. It's in the seventy-eighth percentile. It is on the way down. We're trying to catch some more of this premium while it's still really high. FXE is continuing to move just a little bit sideways over the last couple weeks. We hope that it does continue to move a little bit sideways.

Although we are tilting our strategy just a little bit higher towards the one-twelve strike. We give ourselves a little bit more room, that's mainly because we already have positions that are a little lower from where FXE is right now. Again, today was the first day those August contracts were available.

I got a lot of people asking about, and he had no open interest showing up in any of the contracts. The reason that there is no open interest showing up right now is that open interest is calculated after the close of every trading day. It's recalculated for the next day. Whenever you see open interest its usually for the last trading day.

In this case, the contracts just started trading today, so there's no open interest because there's nothing before today trading. Tomorrow you'll start to see some of these numbers flow over into the open interest category and they'll start to build up some open interest as we continue through the cycle.

Even still, you can just kind of look at some of the bid/ask spreads they are pretty tight as the market was trading today two, three pennies wide, so fairly tight. You can see where our short strikes are; we placed everything around one-twelve so a little bit higher. And then went out ten dollars on either end to the one twenty-two and one o two to buy that protection, that gives us a very wide base for our FXE position here in August.

This is what we currently have on for all of the FXE when we take out July. Just looking at this position again you can see very very wide, tall iron butterfly here and FXE. The goal is not to leave this thing all the way to expiration, to take this thing off about twenty-five to thirty percent potential profit on this thing as far as our credit.

Manage this thing early hopefully when implied volatility drops. We're still leaving room to add to this position; it's not our only position in August, we probably won in FXE. Keep in mind that we want to continue to add to this. If you wanted to reduce the margin cost of this trade, you just wanted to buy some strikes that are closer.

Maybe you didn't go all the way out to one twenty-two and one-o-two, maybe you came in to one-seventeen and one-o-seven. So you can buy something a little bit closer. You'll give up a little bit of your credit, but it'll also reduce the margin exposure and the risk on the trade if you choose to do so.

That's the only trade that we made today. As always if you guys have any comments or questions, please add them right below, inside the video update page in the triangular page. Until next time, happy trading.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.