Recapping Our 3 Month Trade In COH

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Option trades: In tonight's video, we're going to be going over all of the trades that we made for Tuesday, July 14th. It's a pretty active day, we had 10 trades that we entered. Some opening, some closing, some hedge/adjustment which are mostly just closing trades.

We're going to go over all of these in the video, might be just a little bit longer but stick with us. I want to make sure that we cover everything completely. We're actually going to start off with our closing trade of our inverted strangle in coach.

This is a trade that we've had on for a couple of months now. We made an earnings trading coach, and the stock went completely against us, and we've been trying to fight back and fight back against this trade the entire time.

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I think we did a pretty good job although the stock continued to go against us for the better part of 2 months. Never recovered or rebounded which is ideally what we had hoped it was going to do. We ended up closing out of our 35/43 inverted strangle for a 934 dollar debit. After all adjustments, I'll show you those here in a second. We ended up with a loss of 314 dollars.

It's still a loss, but in my book, it's much, much less than what it could've been had we done nothing at all and continued to stay mechanical and making adjustments and rolls. Here's a look at the chart of coach and you can see when we made that original earnings trade, it was up here around 43.

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That was actually kind of the main strike that we stayed with as we made that initial earnings trade and the stock moved well outside the expected range so we did what we naturally do which is roll the contracts to the next month but the stock continued to move down and down and down, and we just continued to roll because we were getting a credit every single time that we rolled.

Anticipating that at some point, maybe the stock might rebound and come back inside of our profit zone or really where we ideally wanted the stock to be. In this case, it didn't. It continued to go further and further, and at this point, it doesn't make sense to continue rolling it because we're not going to get credit for our roll and so there's no point to continue to roll for no credit.

If we were going to get credit, then we might consider rolling a position again and extending the trading timeline. Here's a look though at our actual account statement so you can see all of the trades here and you can pause this video and add and subtract everything that you want to do, but you can see that our original opening trade, that original opening straddle was back in May.

We've held onto this position for a long time and, again, continued to fight back and fight back against it. What's interesting about this is that if you start to just look at this, you can see that the whole reason that this trade actually worked out really well and gave us a much lower loss than what we could've had originally is because we were able to roll that trade and continue to take in a credit and a credit and a credit and a credit and a credit and a credit and a credit.

All the way, all the way down as the stock continued to move against us. From our initial break-even point, which was about 3 dollars out from the 43 strikes, that means that we had an initial break-even point that was right about here. You can see after just the first days moved and the first big move at the end of the month for this stock, we could've been down a couple 100 dollars.

Had we done nothing at all, we could've easily been down 7 or 800 dollars on this trade without taking in a credit and continuing to roll our strikes lower and lower and lower. I think the real name of the game here with the coach and we'll do a big case study on this that we'll post inside the membership area here in the next month or so.

The real big story here with a coach is that even though it went completely against us, what saved us and helped reduce our loss was this fact that we continued to take in a credit every chance that we got for as long as we could.

At this point, the stock's just not being favorable, and we can't take in credit by rolling to the next month so, at this point, it is the best trade to go ahead and just close out and bank the loss. The other trade that we closed out today was one of our TLT iron condors that we had.

This was an original iron condor that we put on a couple of weeks ago. Sold it for in the 60s or so, bought it back for a 15 cent debit. Everything worked out well for this position. Stock trade sideways, implied volatility had started to come down, and so that allowed us to take a nice 104 profit pretty quick on TLT.

Our 2 opening trades just before we get to some of the adjust or hedge trades but closing trades for FXE and FXI. We did make an earnings trade in CSX and YUM; you'll notice that both of these are straddles right on the same strike price on both sides. We're taking pretty aggressive stances on these trades because they have high implied volatility.

In CSX, we sold the 33 straddle which was a little bit bullish, based on where the stock closed and we just arbitrarily picked a direction. We're not bullish or bearish on the stock; we just had to choose either the 33s or the 32s. We chose the 33s, and so we're just a little bit bullish on the stock, and we did take a nice credit of about $1.50.

This is our first earnings trade that we've made so just as a recap for those of you who haven't gone through a lot of training on earnings; you can see that implied volatility is high, it's in the 67th or was in the 67th percentile today before it dropped.

We're looking for a drop in implied volatility and CSX, although it moves around earnings, doesn't tend to be a huge mover. We don't see the types of gaps that we see with Netflix or Google or Amazon, etc. What we're trying to do is just focus all of our attention around the 33 strikes, which are right here.

We just had to pick a direction, a little bit bullish and then our break-even points put us about a dollar and half out on either end as far as just a little bit of movement in the security. After ours right now, the stock is trading up to higher after announcing earnings.

It's trading about 33/10, and you can see, this is our very wide straddle here in CSX with break-even points at 34 and a half and 31 and a half. If the stock opens exactly where it is right now, tomorrow, we could stand to make a pretty healthy profit on just this very small 1 lot trade.

Again, with these earnings trades, you always want to make sure that you can move outside of the expected range. In our case here, we can look on ThinkorSwim platform and see that the expected move in the stock or the 1 standard deviation move in the stock for 1 day, tomorrow on earnings for CSX was about $1.44.

In our case, we want to make sure that our credit got us beyond that $1.44 in either direction, especially when you're doing straddles like this, and it did. You can see, there's lots of volume, lots of liquidity on both sides.

It was a pretty active day for CSX, and so it was very easy to get into and out of this very tight margins. Again, very good earnings trade. It looks like it should end up paying up pretty well. The next earnings trade we got into was in YUM.

YUM was pretty much a no-brainer, we talked about this on the strategy column last week with lead members. Implied volatility in 100th percentile, it's never been higher, so the only thing that you can do here is do something aggressive. Sell as much premium as you can, not even buy any options for protection if your account allows it and so what we did is we did the straddle right at 92, took in a massive credit of 569 dollars on YUM.

Again, hoping that the stock stays within that kind of break-even range. Here's a chart of YUM and you can see, implied volatility up in the 100th percentile here for YUM which is incredible. It's just had high implied volatility and last time, the last couple times it's had earnings, it's been this high and had a pretty good drop afterward.

That's really what we're looking for. We just want that 1-day drop in implied volatility. You can see, we just tilted ourselves a little bit bearish at the 92 strikes which ended up working out pretty well towards the end of the day. We're pretty even on the announcement.

I don't know if actually, YUM has announced earnings, so we'll see here if the stock has moved. Yeah, so they announced earnings it looks like, and the stock's already trading down around 91 ... 90, 91 or so. With everything centered around 92 for us, now the stocks announced earnings.

It looks like it could be still a pretty profitable trade, we'll see what happens when it opens up tomorrow but again, our break-even points, since we took in a pretty big, massive credit of 500 plus dollars, put our break-even points very, very wide here for this 1-day event. Again, with YUM, it was pretty easy to get filled here. There was lots of liquidity.

You can even see that, just in many, many different strikes on both sides, both the calls and the puts; there's just an insane amount of liquidity in the underlying stock. It looks like it should be another good trade in YUM. Took in a pretty profit or pretty nice credit so hopefully, we can realize most of that tomorrow and close this thing out at a pretty big profit.

The other trades I want to go over, these are not hedge trades just as an FYI. They're not hedge trades because we're not adjusting anything, but we did start closing out of most of our FXI and FXE positions that were in the money or kind of very close to the money today.

Everything that you see here, this is not the entire position that's closed. I think both on FXE and FXI; we have a couple of long options that are just serving as lottery ticket options. We don't expect those to be closed out or be profitable; they're just kind of on there right now in case something happens crazy towards the end of expiration.

Both of these positions for July, we are definitely out of in most cases but what I wanted to do is make sure we go all the way through expiration before we total up everything as far as the total profit and loss after all adjustments and through expiration.

That's why I just threw them in the hedge column right now just so you guys see. We are going to total these up at the end of the week, no doubt about it, so you'll see exactly what we made or lost on every one of these things but again, with FXE, we're basically just going back and buying back everything or selling out of everything that's really close to where the stock is right now.

You can see, we bought back our 112 puts that were deep in the money, our 109 calls that were just a little bit our of the money and we sold our 107 puts that had some value left, so those were the 3 main trades that we made in FXE. In FXI, we did virtually the same thing.

We bought back our deep in the money put credit spread for 4.61 debits and we also bought back our in the money 41 calls for 1.79 debit, and we bought back our hedge that entered just the other day for a nice little profit on the hedge. It was, again, mainly there to give us a little bit of protection.

The stock moved slightly down which is actually what we wanted, so it ended up working out okay, it didn't ... FXI hasn't been too crazy this week although I anticipated the stock to be all over the place. In this case, we bought back our hedge because we didn't want it to go in the money as the rest of the week happened, right?

For 36 dollars that we took in credit for each of those, we bought them back for 28 dollars, took in a nice little credit on those. Again, it served it's purpose for the quick time that we had it there and we just want to go ahead and take it off.

We'll total up all of the trades that we had in FXI and FXE for the month because we closed out some positions earlier in the month and left some positions on so this is kind of what's left, our remaining sloppy position, whatever is left there with all these different contracts.

Basically, the gist here with FXI and FXE is you should be pretty much out of everything except for maybe 1 or 2 long contracts in each. As long as you have that, you should be pretty good to go. Haven't touched any of our August positions in either of those right now so those are all still going to be on, and we'll still continue to monitor and add to those positions as needed as we go throughout the month.

Hopefully, this was helpful tonight, going through all these. If you have any questions or comments, please let me now in the comment box right below 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.