XHB Straddle (LIVE Closing Trade)

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Straddle: In this video, I want to go through the thought process of closing out of our XHB which is an S&P 500 Homebuilder's ETF because we have a decent profit on our straddle that we initially entered for this trade. Going back here to our position statement, you can see this is the straddle that we've opened up here in XHB for members.

We originally sold this straddle for $2.45 each. We've got two of these. And right now, they're from March expiration at the time of this video, so there are about 29 days to go until expiration. Right now, those things are trading for about $1.85 which is about where our profit target is for straddles.

We like to take these off when they have decayed in value about 25% or take them off at a 75% of the credit received which is about like $183, $184. Right now, it's trading about $185, so we can place an order to take this thing off. Right now, it's making us about $114 on this particular trade, so we can get out of this trade and bank a profit.

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Now, the original trade that we had here in XHB was put on $127. I just want to go through like how this trade has ended up making money. $127 is right here. This is the day that we placed this trade. And you can see, thankfully the stock has moved almost exactly sideways because we have the 29 straddles here. The stock has moved sideways. And during that period, implied volatility has gone down just a little bit.

We had a little bit of pop in implied volatility. This trade went against us in a pretty big way earlier on. We didn't adjust. As always, we try to keep our cool here and be very patient. We got to let these probabilities work themselves out. And even if this trade didn't come right back around, we've got all the way until March expiration for this thing to work out. We still have a lot of time. But now we're at a point now where we can start to think about taking money off the table because we're reaching some of our profit targets on this trade.

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When we look at the payoff diagram here for this XHB trade, you can see this straddle has that beautiful like peak and pyramid type shape. And with the stock right now trading around 29, 67 or so, we have an opportunity here to take money off the table and to make a little bit of money. We're not trying to hold this thing all the way to expiration like some other trades, but we want to increase our trade occurrences and our win rate.

And the way that we do that is we take trades off like this when they're close to being excellent winners. The way that we get this trade off is just from your actual position statement. You're just going to click right on the straddle. We're going to go over to buy back the entire straddle. Again, these are the 30 calls and 30 puts.

This will bring up the order here to buy back both of these for March. And we're going to try to reach a little bit and try to get about $185. The market right now is about $186, but we're going to try to get a very even price about $185, see if it doesn't end up filling here in the next couple of minutes.

Now that order is working, and it looks like we're already filled. Now you can see in here that order for XHB already filled. It didn't take that much time. We offered a price that was a little bit below the market price, but somebody made it, so now we're out of XHB with a nice little profit. Again, a very simple way to get out these straddles. You could've created a contingency order as we talk about in some other videos in this training series. But in this case, it was a nice little profit that we could take off the table.

And we weren't even in that trade that long, maybe two and a half weeks or so actually in this trade or a couple of weeks, maybe three and a half weeks, four weeks where we're in this trade. Not a long trade, but a decent profit trade for being patient. As always, hopefully, you guys enjoyed these videos. If you have any comments or questions, please ask me 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.