Nearly A $1,000 Profit Today Trading Options When SPY Finished Flat

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Trading options: In tonight’s video, we’re going to go over all of the closing trades that we had on Thursday, September 3rd. It’s a pretty good day actually, considering everything that happened or didn't occur in the market I guess.

We were up almost $1,000 on the day which is great, and the market didn’t move anywhere which is even better. And it’s all due to implied volatility dropping. We didn’t make much money on the actual movement from day-to-day, meaning from yesterday to today, so the $1,000 wasn’t on any one particular stock, it wasn’t on any big running thing, we’ve got a lot of positions going, but it was more or less the fact that across the board, we saw implied volatility drop.

And the markets did not go anywhere, the S&P was up two points less than 2/10 of a percent, so for all intensive purposes, it was an option seller’s dream, a volatility trader’s dream.

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We did end up closing out of four trades today, all working orders that were automatic closings that happened, so these are orders that we put in ahead of time that now got filled. First one is in XOP. We bought back our iron butterfly at a 335 debit. I’m sorry, that should say debit, not credit.

We bought that back at a debit. And look at that. Another straddle means the same thing. I don’t know why I did that today. But all of these are debits. I’ll adjust them after the video is done. But we took in a nice profit on the iron butterfly of $112. On USO, we finally got filled in our position that we were trying to get out of.

And I’m surprised it took as long as it did. USO is pretty liquid, and we were trading right around the price that it was for the last couple of days, but finally got out at a $10 debit for our October positions. There’s just no point in holding them all the way through October for another $10.

We took a nice $160 profit. Same thing with RIG, we got out of RIG, bought it back at $1.50 debit, made a nice $52 profit on that iron butterfly. And then our big straddle that we had in DIA, we bought back for a $5.65 debit, not credit, and took a nice $185 profit.

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Overall, it was a beautiful day, just a lot of movement in the portfolio, but mostly due to implied volatility. I just wanted to highlight one that drives home the point. But here’s RIG. RIG today was up less than half a percent, an $.18 move in the stock at the end of the day, so virtually no movement in the stock, a little change up or down.

But where we saw a lot of the premium start to be reduced is right here in that quick little-implied volatility drop. And that’s all it takes. We entered the trade all the way up here when implied volatility was much higher, and now that we’ve gotten just that quick drop in implied volatility down to about the 70th percentile, that’s all it takes for us to make a nice little profit in this market.

That’s why it’s so, so important that we be a little bit more aggressive with our positions, not only the number of positions, but slightly in our position size when implied volatility is much higher because that quick drop in implied volatility, regardless of market direction, gives you an excellent opportunity to make some money.

Across the board, it was a beautiful day. That’s all we had today. It’s just a couple of closing trades. Hopefully, we can see some more of these start to pop tomorrow. As always, if you guys have any questions, please let me know in the comment box right below this video. And 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.