
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
OverviewLong callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBondsBrokersCandlestick patternsChart patternsDay tradingDividendsEconomic indicatorsEconomicsETFsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvesting basicsInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketSwing tradingTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend tradingGlossary
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a bot
Using the bot wizard
Automation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeEvaluating underlying symbol OHLCComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolEvaluating bot position activity historyEvaluating bot position activity history with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsInstantly create bot from backtestBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginSign Up
ResourcesPodcast

The 5 Month “Grind” Following XLE Short Put Option Assignment

This episode provides an in-depth look at a short put options trade that resulted in assignment of long shares of stock. With patience, mechanical adjustments, and proper position sizing we were able to manage this position over many months.
The 5 Month “Grind” Following XLE Short Put Option Assignment
Kirk Du Plessis
Sep 27, 2019

This was a long trade. Maybe not the longest trade we've been involved in, but certainly one of the longest as this short put option assignment lasted over 5 months. For most options traders looking to make a quick buck, this trade stretches their patience and conviction far beyond a reasonable level. Still, I think that today's case study is important to hear because it proves critical concepts to how we think about trading here at Option Alpha. And, what better way to prove something than to show you how we managed the entire position, start to finish, with real money.

XLE Case Study

  • The original position, a simple iron butterfly in XLE, was entered on 10/11/2018.
  • The day we entered the position, XLE had already fallen in two days from a high of $78 to a low of $72.68.
  • As a result, implied volatility had spiked to about 100%.
  • We decided to open up a single contract at the time.
  • We sold the $73 calls and $73 puts, buying options out on either end by a couple of dollars. For the wings of this iron butterfly, we bought the $79 calls and the $66 puts.
  • The position resulted in an overall net credit of $365.

Early Assignment

  • In this case, we got the "direction" completely wrong. The price of XLE the day we entered the position was actually the highest price XLE traded throughout this entire trade.
  • On November 9th, we were assigned the stock for November expiration. 
  • At this point, the stock was at $66, putting our short option position very deep in the money, triggering an assignment.
  • We were assigned 100 long shares of stock.
  • At this point, we still have all of the other components of the original iron butterfly position. 
  • We decided to hold the assignment and manage the position. 
  • As we got closer to November expiration, we had the opportunity to sell back our $66 long put option.
  • The $66 long put option started to go into the money, and we sold it back to the market for $57.

Credit Calculation to date:

  • Original position - $365
  • Selling the $66 put option - $57
  • Total credit now = $422

November Expiration

  • XLE was trading at $66, the short put option strike price.
  • We decided to continue the position and hold onto the long shares. 
  • Everything else we had for the original November position expired worthless. 
  • At this point, the stock is trading at $66, so we tried to reduce the cost basis by selling a covered call. 
  • After expiration, we sold the December $70 covered call on our position, which gave a decent premium (87 cents) and also left some room for the stock to rebound.
  • We sold the next monthly expiration--so about 30 days out from expiration. 
  • Total credit now = $509

XLE Goes Down, Again

  • A week later, XLE moved from a high of $68 to a low of $54 the day before Christmas.
  • We've now held the stock for 3 and a half months, while it has taken a nosedive twice. 
  • At this point, the stock is really oversold, but our breakeven point has been moved down to $67.91.
  • We believed that the market had gone down too far, too fast.
  • On 12/4, we decided to roll down our short call options. 
  • We bought back our $70 strike calls and rolled those down to the $68 strike calls to collect additional premium. 
  • As the stock moved lower, we got an opportunity to move down our calls and collect additional premium (a net difference of $51)

December Expiration

  • In the middle of December, the stock continued to nosedive, and as a result, IV spiked. 
  • As we approached December expiration, we decided to roll out our covered call position from December to January.
  • We used a diagonal order to move the covered call from December to January while changing the strikes. 
  • We bought back our December $68 call options and sold the January $67 call options for an additional credit of $50
  • Total credit now = $610

January Expiration

  • We held the long stock position for yet another month.
  • The stock rebounded to a high of around $62 as it reached January expiration. 
  • The $67 call options expired worthless.
  • We were once again left with a simple, long stock position in XLE. 
  • On January 31, we decided to sell the March $67 call options for 43 cents (additional net credit of $43).
  • Total credit now = $653

Approaching March Expiration

  • Fast forward a month and a half to March 12, 2019 and the stock had only gone up about $1.50 during this entire time.
  • At March expiration, XLE had still not breached the $67 short call strike.
  • So, we continue to stay the course!
  • We bought back the March $67 call options for 2 cents, and rolled out to the $66 call options in April that were trading at $1.04. The net credit on the roll was $102.
  • Total credit now = $755

April Expiration

  • We had an opportunity on 4/05, as the stock moved a little bit higher, to remove the entire position for a net profit.
  • We sold back our entire covered call position for a $65.63 credit. 

Position Summary

  • Let’s review the P&L on the trade:
  • Total credit of $7.55  - $73 cost of assignment = Net cost basis of $65.45 per share
  • On 4/05 we sold the position at $65.63.
  • $65.63 sale of the position - $65.45 cost basis = $0.18 per share profit
  • Total profit = $18

By no means is this a great profit, but it could have been much worse if we had not decided to keep our position size small, to keep selling premium, and extend the duration to reduce our cost basis. If we had reached our breaking point and capitulated on the trade at the lowest price, our ~$66 cost basis would have turned into a roughly $1,300 loss.

Conclusion

  • You can take a seemingly small position, and it can become a very large loser. That is why position sizing is so important to begin with.
  • For many people who got into this trade, the position ballooned so big that it reached their breaking point of no return.
  • If you have enough patience and fortitude to stick with it and reduce the cost basis and hold onto the position for potentially 5 months, when it goes against you, you can turn it all the way back around. 
  • The key is to do the mechanics right, stick to the rules of position sizing, and manage your portfolio balance and total capital allocation.
  • For another example, listen to EWZ Short Put Option Assignment Case Study.

Option Trader Q&A w/ Robert

Trader Q&A is our favorite segment of the show because we get to hear from one of our community members and help answer their questions live on the air. Today's question comes from Robert:

For a small account, would you recommend trading the weekly $1 or $2.50 spread with liquidity in the triple digits on both strikes instead of a $500 spread with good liquidity? Where do you think is the line in the sand you shouldn't go past on liquidity? Could you run into issues with the triple-digit liquidity if you're just trading a couple of contracts?

Remember, if you’d like to get your question answered here on the podcast or LIVE on Facebook & Periscope, head over to OptionAlpha.com/ASK and click the big red record button in the middle of the screen and leave me a private voicemail. There’s no software to download or install and it’s incredibly easy.

Put Options
Assignment
Case Studies
Expiration
Short Puts
Long Put

4.8 (1.1k Ratings)
Subscribe Now

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547