Patient Option Traders Make Money

Download The "Ultimate" Options Strategy Guide

Option traders: In tonight's video, we're going to go over just the few closing words that we had today and the one quick adjustment that we had in EWW. First on deck is our position in XRT. Now, this position split. So this was a position where we entered six original contracts.

Then XRT had a two for one split, that means we got 12 contracts and now half the size. Our original spread was $2 wide now our new spread is just $1 wide. End of the day, this was a pretty aggressive bearish bet. We had sold options even though it was a call credit spread. We did it very, very close to the money when the market was falling.

So this is more of one of our hedges that we wanted to use against possibly the market continually to fall. Well, it didn't, in the case of XRT, so we ended up buying this back today for a near maximum loss of $546.00 loss. You can see, near this position, back here when the market was falling, again using it as a hedge for possibly continued move lower and the market didn't move that way so we couldn't roll this thing for credit .

Related "Option Traders" Resources:

option traders

We talked about that on the strategy call this weekend with a lead member so it your a lead member we obviously went thought that. If your not, you can sign up and see that call recording. But talk through the entire process of what our game plan was heading into this week with this position, and it didn't work out, so it is one we have to chalk up as a loser, unfortunately.

I did have a nice trade that we closed out of in IWM or IWM straddle that we entered. Again, another trade we entered when the market was falling. Our 116 call and 116. We bought that back for $566.00 debit, so it took a $189.00 profit on just that trade. With IWM, it was just plainly; the market had recovered a little bit from the drop.

So when the market dropped we had sold that straddle right where the market was and now as the market continues to rally back higher towards that price point and price of drops that gives a nice little profit.

Start The FREE Course on “Trade Adjustments“ Today: What happens when a trade goes bad? Do you roll out to the next month, move your strike prices, add/remove one side or do nothing at all? We'll give you concrete examples of how you can hedge different options strategies. Click here to view all 15 lessons ?

I think what is really interesting about this trade is that almost 2 days after we made this trade, we were down a couple of hundred dollars in this trade but that is what you have to do sometimes with these trades. You have to wait and be patient for the stock to come back around and it doesn't happen right away.

It took a little bit of time for implied to get sucked out of the trade and for everything to work but at the end of the day these probabilities are going to work out you just have to give them enough time and enough trades to see the results.

I, definitely, suggest everyone check out our most recent podcast we have some pretty cool statistics on how these probabilities work out, with the number of trades you make over time. That worked out pretty well in IWM. The next trade that we have is in EWW. Now, with this particular trade, we do want to maintain exposure that we have in EWW, so we ended up custom ordering.

All we were doing is trying to facilitate a roll of our call side and the additional put side for one order. So it just helped minimize commissions as much as possible. IF you could do it for one order, great, So that is what we did, we did a custom order in EWW. What we ended up doing is sticking with the same strike prices that we had before in the actual stock.

So inside EWW here I want to show you exactly what we did so you guys can see it in real time. So we have the 48, or we had the 48 call and put spread down below so the 48 straddle. All we were trying to do is get our entire position out to the next month for credit. If we can do that, unlike what we couldn't do in XRT, then we get compensated for taking that extra time.

So we took a massive credit, to begin with on EWW on our first trade --- now we are just trying to get that entire trade from September out to October. Basically, what we did, we did a combination of a calendar spread, so we did a calendar spread on the call side, where we rolled the call side out to October and took in a credit then we added the additional put in EWW at the 48 strike, and that also helped take an additional credit.

So overall we took in a nice additional $48 credit for EWW. The stalk trade is much higher and rallied up much higher towards the end of the day at 54 in change. Our break even on this thing is much much wider. You can see after 2 expirations; you can see the adjustments that we made. We have a massive credit building in EWW.

It's this orange line here with 2 expiration which is going to be the October expiration here. And it is now within our break even point. So we have a position now that we haven't even adjusted and rolled up our short strikes from 48 or even higher or little bit inverted. We can continue to adjust this position and move this break even point out further and further.

Right now with this one adjustment to move out to the next contract month we have given ourselves a lot more distance between ourselves and the market and kept the market inside of our break even point which is what we want to do. So the market is trading right about here right over 50. And our 54 and our break even point is right here at 54 1/2.

So that really good for this particular stock, and it has had a huge rally up, dropped down move down that helps. We just need to see a little pull back here in the stock which I think we could see sometime in October. That is why we like this position we want to continue it forward into the next month and so if it doesn't work out then the stock continue to rally, we will keep rolling up that put side, taking in more credit along the way.

As always, I hope you guys enjoy these videos. If you have any questions at all, please let me know. Ask them in the comment box.Just as a side note try to get, this video did tonight because I'm leaving very early tomorrow for Fin Con conference in Charlotte. If you happen to be there, please let me know. Shoot me an email.

I'd love to meet up buy you a drink, grab some coffee. Otherwise, I'm going to get to as many emails as I can get to during the day. It might be a little more delayed than usual, just for Thursday and Friday this week. We will see everyone tomorrow --- hopefully, the Fed decision takes us somewhere in the market.

We will talk to you soon. 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.