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Trading ETFs: In tonight’s video update, I want to go through a handful of closing trades that we had on Tuesday, May 24th. It was a day where we closed out of a lot of things, took things off the table, continued to whittle down the size of our portfolio which is not always the best thing. But there’s just not a lot of volatility in the market.

Markets rallied a little bit today, and that's okay, we had some things that took advantage of that, but there’s just not a lot of volatility for premium sellers like us. We have to start working this week on getting into some other things like debit spreads and calendars and start to diversify out and play the long side of volatility here in a small way.

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Now that being said, we did go ahead and close out of a couple of things. The first one I want to go was our earnings trade; this was BBY. As I said in the trade comments when we sent out this order, and as I mentioned in the other night in the video update, when we do an iron butterfly like this, like what we did in BBY… And if I just scroll down here, you guys can see this is the opening trade.

This was the iron butterfly that we originally sold just yesterday. When we do this, if we are going to close out the position and if it ends up being profitable, we’re only going to take off the short legs or usually, we’re just going to take off the short legs if the long outside legs are not worth any money or not worth a lot of money.

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In the case of BBY, that's what happened here today. We just went ahead and closed back the inside straddle which is the short legs at 33, we bought that back for a $2 debit, considering the stock started to moved a little bit more than expected. It opened towards that end of the range, so we were able to salvage a little bit of a $37 profit on this trade, very small, but a win nevertheless, and then the stock fell a little bit harder throughout the day and closed on its lows.

But again, what we did is just entered and closed out of the inside straddle short legs at 33. And what we’re going to do is we’re going to keep the long legs because they’re not worth a lot right now, but they could be in the next three days. If this thing continues to fall after earnings and miss in estimates and guidance, then it will be good for us.

Remember, the stock opened up here at the top end of this red box in candlestick range. It was awesome because that’s where we exited the trade. Had you held on through the rest of the day, you probably would’ve had a loss getting out of these trades. That’s why we just get rid of the trade early in the morning.

All we’re trying to do is take advantage of that drop in implied volatility which is what we got. We didn't get a huge profit because the stock moved a little bit more than expected, but we still had a profit nevertheless because of implied volatility.

Like I said, we’re going to keep these long legs, the 37 calls. Those are practically worthless; they’re worth about a buck, it’s not worth closing out those trades, you’ll pay more in commission to close that out than just let it expire. On the put side, the 29s are starting to be worth a little bit of money. When we closed out this trade earlier in the morning, these were worth about $.3 apiece.

Depending on your commission structure, it may or may not have been appropriate to close this out. They’re now worth about $7. Do I expect to make a lot of money off of those? No. But the stock was down $2 ½ today, so who's to say that over the next day or so, it’s not down another $2 ½ and starts becoming an in the money type option?

We’ll continue to monitor it. I don’t think that it’s going to be a profitable trade to hang onto these. I mean, at the end of the day, we’re factoring in our profit here, assuming that we lose on both of those ends. If we don't win on these long legs, these lottery tickets here, it’s not going to kill us, we still made a little bit of money on the trade.

The other trade that we got into right after the market closed out of is two of our remaining GDX strangles. We are completely out of GDX now. We got out of the 28 calls and the 19 puts in this set of three because we entered sets of three here in GDX and we bought that back for a $30 credit. That means on this set individually; we took in about $105.

Later in the morning, we also closed out of our other set of GDX strangles. This was the 30 calls and the 20 puts. We closed those out for a $25 debit and took a nice $153 profit on GDX on this set of strangles. At the end of the day, though, I mean, we’ve done a good job here trading precious metals. We’ve made about $1,200 in the last two months in precious metals, GDX, GLD, and SLV.

It’s been an excellent trading vehicle for us, mainly because implied volatility has been very high and starting to come down in most of these securities. You can see this is GLD here, implied volatility coming down. GDX, implied volatility hasn't come down as much, but has come down since we started entering trades. And then we also have SLV as well which SLV spiked early, and we were able to make a lot of money on some SLV trades back in late April here into the May expiration cycle.

At the end of the day, I mean, this is just the name of the game. Everyone is trying to avoid moves like this in GDX and GLD and silver, big spikes up. But this is what you have to plow money into. Do we have to adjust a couple of trades along the way? Yeah, absolutely!

But at the end of the day, because we spread our trades out, and we didn't just pin everything at one price point, and we entered a set of three today, and then a set of three in three days, and then another set of three the next week, and the week after, we spread our trades out over time. That I think is what helped us make some money with these precious metals lately.

GDX is still on our radar here because it’s got high implied volatility. We’ll probably look at something in July versus the June expiration cycle just because we’re too close to expiration. We’re about 24 days out in June expiration, and you can see these far out of the money options, they’re just not paying a lot anymore right now, so we need to go out to the next month and start building out the next end of our portfolio here.

Hopefully, you guys enjoy these videos. If you have any comments or questions, please ask them in the comment section right below. 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.