Our Biggest P&L Day This Year

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P&L: Tonight, we’re going to go over all of the trades that we made for December 17th which is Wednesday. A pretty great day. It was probably one of the bigger P&L days that I’ve had because of the market rallying. We were just positioned that way and apparently haven’t gotten everything back that we lost as crude has continued to move down as far as those places go.

But generally across the board, we had a huge day P&L wise, probably one of the bigger P&L days I’ve had just because of how many positions we’ve put on. Nevertheless, it was an excellent day to enter a lot of new trades as well, so that’s mainly what the focus of this video is going to be on, is about outlaying some premium.

We were able to do a lot of it before the FED meeting and I knew that the FED meeting was going to cause a drop in implied volatility because now that we’re beyond that unknown event knowing what the FED is going to do or not going to do or if they’re going to sneeze or not sneeze in the comments. We knew that implied volatility was going to drop, so we had to outlay as much premium as we could before that, and that’s what we tried to do.

Inside the Option Alpha platform, you'll notice that we do have a new trading alerts page. It's not linked up directly from the dashboard just yet, but you’ll get the link to it from the email that you just got to click on it. You’ll see these new trading alerts in here. And this is a new layout that I’m testing. Please let me know via the comments or shoot me an email back if you like this new layout.

It’s a little bit different on the trading alerts page. I wanted to break them up into columns so that you could see the trades. And then you have the video right below here. It’s going to be its separate page, and that’s obviously for different purposes now as we reorganized things inside the dashboard.

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What we’re also going to be starting but not right away (so please don’t email me with questions about this right away because we’re not going to start it right away) is we are going to start at the beginning of the year, so January of this year, we are going to start to give you guys access to a PDF that allows you to view all of the current and open positions every week, but only once a week on Monday.

We can’t do it every single day, but we can do it once a week, and we’ll be able to view it and access it from right in here inside the trade tab inside the trading alerts page inside the membership area. You’ll be able to see all of the open trades ahead of the week, and I think that might help out just knowing where you are, what trades you have and acting as mini check in the balance. And I know that that was a big question that came up with a lot of people.

We’re continuing to work out the logistics of how much we can show since we’re not registered investment advisors. You guys know that that’s a big thorn in my side. I don’t want to be crossing any boundaries that I can’t cross legally by doing this. I want to make sure that everything is up to pace and closure with all the laws. And for that reason, we just need a little bit more time to do some due diligence, make sure that we’re displaying them as accurately as we possibly could and well within the legal limits.

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As far as trades today, let’s go over all the opening trades first. The first one that we have is the iron condor in FXE. And a lot of these trades are very similar. I’m sorry. I think I put the iron condor here twice, so that is on there twice and it shouldn’t be on there twice. But we did have that one iron condor in FXI, and it was just because FXI had great implied volatility and we’ve already had a lot of positions to other places, and we’ve built up a pretty healthy portfolio of iron condors and getting relatively neutral to this recent market move.

But it was good to add another iron condor to our portfolio and take in a little bit more credit in doing so. Now, what we ended up doing in FXI was selling the 44/45 call spread in February and coupling that with the 35/34 put spread for February as well. A $1 wide spread on either side and the combination of those two sells gave us a total credit of about $.21 per iron condor that we sold. A small credit, but it gives us about an 80% chance of success roughly based on the credit, so a very high probability trade.

When we look at the charts, the 44 strike, and the 35 strike become our breakeven points. And you can see here on the chart of FXI, not only is implied volatility very, very high, it's up in the 73rd percentile which is extremely high, but it's more or less been trading range bound for the last month or so, so we’re just hoping that at some point we continue to have that range bound in the market.

But with IV so high, that gives us breakevens all the way out here at 44 which is way above where the market is trading and all the way down here at 35. You can see our profit window is colossal in this trade. And even though we collect $.20, that’s not what this game is about. It’s about making these high probability trades over and over and over again every single day, every single week.

And even though we’re collecting about $.40 on this trade overall, about $40, it's a high probability trade; we’ll probably just let it go most of the way to expiration with very minimal adjustments, let the prospects work themselves out.

When we go back, we also went ahead and got into a vertical spread in the Qs. Now, this one may have been a little bit premature before the market rallied, but we didn’t get a movement on that pricing too much afterward. I think we’re down maybe about $8 on this trade even after the huge move that the Qs had. But we’ve already got positions in SPY and DIA, so we wanted to go ahead and add another major index because there are rare opportunities that we get to add these major indexes which are liquid and to sell premium in them.

For the Qs, we went ahead and got some negative Delta in our portfolio; we needed a position that was a little bit more bearish. Because we were so bullish and had such a great day, we just need to balance things out a little bit. You can’t get too cocky in this business and have everything one directional. We had a beautiful day, it was amazing, it was one of the best P&L days we’ve had, but at the same time, we need to start rebalancing things and getting back to neutral.

That said, we decided to add the vertical call spread, the 107/109 in the Qs for $.32, so that puts our breakeven a little bit above 107 for Qs, still a pretty good distance away. You can see here when I go to the charts of the Qs that that’s still a pretty good jump between where the Qs closed even up almost 2% today at about 102. You’ll notice that even though it’s had such a big move today…

And it doesn’t look so big on the Qs chart; I think the S&P and the Dow and the Russell had a little bit bigger moves on the charts. But the Qs move was pretty good, it was a pretty strong move up today about 2%, but we already started to see implied volatility drop. And our short strike is up at 107 which is still above the recent high, so I feel comfortable in doing that because we have to plough through a lot of the area that we've gotten through, not to say that this market can’t do it very quickly because it’s done so before in the past.

But what I also like about this trade and one of my goals going forward this year into 2015 is to look at really and glance at the indicators just a little bit more, like MACD and CCI. And in this case, MACD is still clearly pointing lower. And at that time, we have just to reevaluate a lot of the things that we’re doing, take it with a grain of salt that we made some significant money today, but we need to keep an open mind to what the indicator is saying. And really at this point, they haven’t turned up higher and one day does not make a trend, so at this stage, we need to be cautiously bearish and still keep a lot of our bearish positions on and working.

Now, the last trade that we opened today because these FXI trades are duplicates, so you won’t see it once you go in there is an EFA trade. EFA is an emerging markets fund and we went ahead and did the same thing we did with the Qs. We went and sold the 64/66 call spread, sold it for a little less credit, but we’re a little bit further out on EFA. Very liquid in this one as well and I like EFA just as much as I like the Qs because we’ve got a lot of distance between ourselves and the market which helps if we do get into a situation where the market continues to rally higher.

Alright, our short strike with EFA is at 66 which is real, really above the recent highs for EFA even during the rally that we had off the bottom. I like this trade, and we’ve already seen a huge drop in implied volatility. And just like the Qs, we also see that MACD continues to be actively pointing lower, so that's tilting our bias a little bit towards selling a call spread and getting bearish versus something like selling a put spread and getting bullish on EFA.

When we go to the closing trades that we made today, this one we’ll go over pretty quickly, the vertical spread that we closed out of in IWM was part of the custom trade that we did back in I think the end of November that we did an IWM. We basically sold a put and then bought a put spread as part of that trade, so selling the put helped finance the purchase of this put, we were able to take in a credit on the overall trade, and since the market rallied higher today, we actually were able to close out IWM early, early in the morning at 85.

The max credit that it would’ve gone to is about $1, so we were able to save a lot of money before the rally today by closing it out early and just leaving another $.15 on the table. But overall, we stand to make about $98 on that custom trade that we did in IWM. A cool trade, we’ll be doing a case study on it shortly. It’s just a fascinating trade just because of the dynamics. It’s not your average naked position.

The other trade that we got out of today is our DIA January 178/176 put spread. I know that there was still some confusion because some people saw the alert that came over initially that said we had 13 of these, but there was a correction right after that. And I also mentioned it in the video tutorial that evening that it was not 13 contracts.

We don’t trade that large a position size because it’s just not good for any portfolio. But we did go ahead and get out of our DIA 178/176 put spread for a 150 credit. After the roll from December to January, we were able to take a profit of about $55 on that. Now looking back on it, I wish I had made 13 contracts because that would’ve been a healthy profit.

If you did happen to make 13 contracts which God forbid I hope you didn't do unless that was truly 1% to 2% of your portfolio size, then you made a pretty decent chunk of change and you can consider yourself lucky because this is more or less a 50-50 bet when we placed the trade. But overall, a good trade, the market did exactly what we thought it was going to do in moving down. We got to take money off the table and now start to reposition ourselves for the new market move.

As always, I hope you guys enjoy these video tutorials. I know this one was a little bit longer just covering these. I would appreciate all of your feedback on the new trading alerts page and how we’re laying that out. Go ahead and take a look around in there. It won’t be linked from the main dashboard just yet. I’m going to be working on that hopefully this weekend to get everything changed.

But I’ve got a lot of new stuff coming out, trading plans, a calendar for future training, the answer-of-all PDF checklist, case studies. There’s going to be so much here for you guys. I would appreciate your comments and feedback as always because I’m building this for you. 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.