2 Day 50% Profit in YHOO

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Options trading profit: In this video, I want to go over just the two quick closing trades that we had on Thursday, December tenth.  In particular, I want to go over just our two-day trade in Yahoo because this is a great example of the power of implied volatility when trading options. 

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When I talk about trading options, I just did an interview for another podcast today, and we talked about why implied volatility is so important, and it is because all options have this extra degree of pricing that is around volatility.

You have your intrinsic value or the value of just the strike prices to where the stock is trading, but then you have this other element which is volatility, and that is the real key to movement in option pricing without movement in the underlying stock, meaning you can see an options price move dramatically just by changing volatility, not necessarily because of a change in the stock price.

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Today that drives home the point with Yahoo, so we closed out of our Yahoo trade, I will show you the closing trade here on Yahoo, we closed out of it again, December tenth, which is today. We are doing this video; it was our strangle, we bought back all three contracts that we had in Yahoo.

The thirty-nine calls in twenty-nine puts for a forty cent debit so basically, right at our profit target of about fifty percent that we are trying to get out of this strangle trade. Took in a nice $123 profit. Now, important here is that implied volatility is down now in the thirty-third percentile.

If you look at our trade screen here and we show you all of our historical trades on our website for members, you can see that we entered this trade back on Tuesday, the eighth. We entered this trade back on Tuesday the eighth, we sold the thirty-nines, the twenty-nines, and we took in a credit originally of $81 on each of those because implied volatility was in the sixty-eighth percentile.

Just that sheer drop in implied volatility that happened in less then two days and here is a chart here of Yahoo, you can see the stock in two days didn't move anywhere, stayed almost the same. In fact, it traded almost within a penny of where we entered the original order, but that drop in implied volatility that happened so quick gave us an opportunity to take money off the table almost instantly at our profit target.

That is what we want to do. Not all trades are going to work out that way obviously but it just really drives home the point that implied volatility is so critical to your ability to generate consistent income with options that you have to pay attention to it and learn how to trade it. The other trade that we took off of today is our strangle in X.

This is one that we took off, again, just in automatic closing order we have held onto for a little while. We bought back both of our January options, the thirty-three calls, and the five puts. Bought that back for a $24 debit. Again, just nice quick profit on this one of about ninety dollars overall. As always, I hope you guys enjoy these videos.

Trying to give you guys an actual account of everything that we are doing here every single day at option alpha. If you have any questions at all, please add them in the comment box below this video right here on this page that way everyone who is a member can see the comments and start engaging so that we can get everything answered for you and get you moving onto the next level with your trading. As always, 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.