XOP Short Strangle (LIVE Closing Trade)

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Short strangle: In this video, we're going to go through trying to close out of our XOP strangle that we're currently in right now. This is a trade that we got into back on 3/11 for XOP which is a SPY oil and gas ETF. Implied volatility was high at the time, so we did a strangle.

We sold the 35 calls, sold the 26 puts as well, sold the entire set of strangles each for $82. They're now trading at about $15, so we've got about $135 profit on this one. And with 14 days to go, it's reached our profit target pretty quickly. And we've hold onto it just a little bit longer to squeeze some money out of this thing. It hasn't been trading too crazy at all.

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short strangle

If we look at XOP on the charts here, you can see the thing has been sideways since we entered the trade. We entered the trade back here on 3/11. The stock has nearly moved, or ETF has pretty much moved sideways since then, but implied volatility has dropped.

Where we've got a lot of money out of this trade is in that drop in implied volatility and a little bit of time decay now that we're a little bit closer to April expiration. But again, with 14 days to go, there's just really no point holding it for another $30. We've made the vast majority of money that we can make on it, so the right thing to do was to take the trade-off and bank the profit.

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We're going to right-click here, go ahead and go to buy the order. This creates that buy order to buy it back. The market right now is trading right around $15 as far as debit. I think it's a fair price. It's a little bit over where the market is trading right now, so hopefully we get filled right away. And you can see we just did.

We just got filled almost immediately at $15. We offered about $.50 higher than where the market was at basically 14 1/2 when we were looking at it. Now, we are out of XOP, banked a nice little profit to start the day here. And obviously, if you guys have any questions or comments, please let me know. 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.