Re Capping Our 2 Month FXE Option Position

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Option trades: In tonight's video, we're going to be going over all the trades we made for Thursday, June 18. We're one day away from expiration. I'm super excited for this video to specifically talk through our FXE position because it was a pretty big position we started building all the way back at the end of April, if you can believe it.

Now, we're through June and we're now starting to unwind this position and unroll this position. I wanted to go over exactly everything that it entailed so you guys understand a little more about how we built this position up. Real quick, let's go over our other two training words tonight.

We did go ahead and close out of just our put options that were in the money for TLT. After all adjustments we made to our TLT position, we ended up with a $24 loss, which is okay. I'm not too happy about the fact that it ended up being a small losing position.

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Generally speaking, TLT had really good implied volatility, but the stock just made too much of a move from when we started to initiate the position. It moved too far outside of the range that we had initially expected with the original entry. We did make some adjustments to the trade along the way, which helped reduce some of the potential loss.

We could have been looking at probably $150+ loss had we not made some adjustments, so I'm okay taking a $24 loss on this trade, given that the stock has made a pretty big move, and we'll continue to add premium to this particular contract as we keep going forward as premium members.

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Now, the other trade we closed out today is our put calendar in MU, ended up with a $2 loss, basically a scratch in this trade. The reality is that MU did have high implied volatility jump. That's what we wanted to see. We wanted to see that jump in implied volatility, but the stock made a hellacious move lower.

We were thinking that the stock would just make a little bit of a move down to around 26, and it made a little bit more than double the expected move. Even so, what really saved us in this trade is the fact that we had a calendar and that calendar has expanded as implied volatility has gone up.

Even though stock went completely against us, much further than our target, the fact that we had this calendar in place really saved our position
All right, now we're going to go over our FXE position. We're going to go over this in a little bit more depth tonight, which hopefully should help out, but as always, if you have questions, please add them right below here inside the trademarks page in the membership area.

Just as a recap, the only positions we closed out of today were positions that were in the money, excuse me, kind of in the middle of the day. We bought back our two 110 calls for $195 each, and then we also bought back our verticals, in the money verticals, which were the 107, 112 calls, for $462 each.

After all the adjustments and trading we did in the month of June for FXE, everything assuming that it expires worthless tomorrow, we'll be left with a profit of $140 after all adjustments. It could have been much greater, but we had to adjust the position along the way. Making these adjustments is really what saved us in being able to make money or not with FXE in June.

Let's go over the chart here and just show you guys what FXE looked like in pretty much the month of May and June because again, like I said, we started making trades in this security right about here, right when we were getting toward the end of April, starting to get really heavy into May.

We've held on to a lot of these positions for a long time. The stock has floated a little bit higher, and implied volatility has basically remained the same from when we started to when we ended, so implied volatility hasn't really dropped in that time period. We've more seen a profit in time decay or theta decay, and less of a profit in volatility, but that doesn't mean that we can't continue to trade.

We're going to keep building a nice position in FXE as we're already doing. What I want to do now is go over all of the trades we made, so you can see a little bit of the history on one screen. You can pause this and take a look at it, but the first thing you'll notice is that our first trade in FXE was our first iron condor.

That was back on 4/29. The end of April is really when we started building this position, again, just in June, so not all these contracts are going to be the June contracts. We're just going to look at the June contracts, nothing in July right now. These are July, these are July, et cetera. You're just looking at the June contracts, but you'll notice, originally we took in a nice little credit, about $344 on this original position, and then we continued to add to it.

We added another iron condor as we got later into the month of May, added another one for a $265 credit. Then, later on we started making adjustments and rolling down some contracts for a $70 credit. Just recently this week, for a $24 credit. All this while, we've been building up this massive credit.

We've had a $344 credit, then we've added $265 for each contract, then $70 and $24, and that's allowed us to withstand some of the movement in the security against us, in which case we had to buy back some of these spreads and some of these individual options are much higher than we wanted to, obviously, but without making these adjustments and continuing to roll into more of a credit time and time again, we would have never made money on this trade.

I think that's the real key point here with this FXE position is that you can see now the path and the history here that we've been building with trading this position in June, and we'll do this again in July when we start recapping July at the end of expiration. It took us a little while to realize a good profit in this, and we could have closed it earlier, probably for a little bit bigger of a win, but we couldn't get any fills.

The reality is here we continue to sell premium. Every time we made an adjustment, we were taking an additional credit, and that really saved us in the end because even though the stocks had high implied volatility throughout. We still were able to take a nice little profit off for June with FXE, and I think the real reality is that implied volatility, it being so high to begin with, allowed us to take in a big credit on most of these trades as we continue to roll and adjust.

Hopefully, that was a really good look at exactly what we're doing here with FXE. Again, really excited about how June and July are starting to shape out, and as always, if you guys have any comments or questions, please add them 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.