Intrinsic Value Of An Option – Trading Options Video 21 part 1

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This is how positions are completed. This is how we get out of trading a position that we’ve been in for about 2 weeks. I am in the April and May positions, and what we have here is a profit and loss graph. The green line is the expiration. The white line is our current position.

As you can see, we are very profitable, at this point. If you come down and take a look at the profit and loss, we are up $414 on this position. The position has only been open for a couple of weeks, in our test account. This is not my total position. This is a test account that we run, just for these types of videos. What we want to do here is show you how it is possible to make monthly income and build wealth at the same time, on very small positions.

If you take a look here, you can see that we only have 1 contract on some of these positions. This is not our total position. Our total position actually included the Diamonds, the ETF SPY, which we currently still have on. We have a few more positions on those. We have about 5 contracts on those, which we are going to be closing out today. We have IWM in there.

We had a portfolio of positions, and we have, over the last few days…let’s see how much time we have on these. We only have 7 days left. Generally, what we like to do at about 10 days out, is start to pare down our profitable positions. We don’t want the risk of them turning into unprofitable positions as we go along.

Right now, with 7 days left, we really want to get out and start to pare down these positions. I want you to take a look down at the left-hand corner of this chart, which is right down here. I want to show you that we are up $411 on our total position. We are in a total position here. This includes the EEMs and the SPY position that we have remaining open.

We’re up $410. Our maximum profit target is $716. If we held this all the way to expiration, without price moving either way, and it just hung in there at the same level for the next 7 days, we would generate the maximum amount of profit, of $728 or so.

But when we have 50% more of our profits, we like to actually start taking our profits, at 20% of our max. That’s what we have been doing. I took the Diamonds off. I took our IWM positions off. Now we are getting down to the point where there is not much profit potential left in our SPY position, so I’m going to take those off. I’m going to show you exactly what I mean.

Our position is up here. We have what’s called an iron condor. If you go through some of our Basics videos on different positions that we have, then you will see exactly how to create these types of positions. But there’s only 9 cents left in this 140 call of April that we have, and there’s only 3 cents left in the April 142.

There is not much profit potential left in these positions. We have maybe 5 cents left, to get out of this. Now, on our put side, we have 16 cents on the 127s. Actually, we would be buying those back at 18 cents, and we would be selling the 125s at 7 cents. We have about 11 cents in there.

That’s about 16 cents. We could end up taking a little bit more profit out of there. Let me take a look at this Analyze graph again. I’ll go down to a single symbol, and I’ll take a look at our SPY position.

We are dead center on profit. If we hold our mouse right over that position, you can see that we are up $283 on that position, with a max of $375. Frankly, the $90 or so that we have left to take in this position, is not worth the risk that it goes into an unprofitable position, if it moves in either direction. Especially with only 7 days left in the trade.

We’re going to go ahead and take those off. That is how you start to pare down the positions that you have. You want to take a look at your individual positions, as well as your portfolio, in general. Then, around 10 days to expiration, you want to start to pare these down.

I want to show you the profit potential. You want to get really good at managing your positions on a portfolio, beta-weighted basis, over time. When you can successfully trade 1, 2, or 3 contracts, then you can begin to move up your number of contracts, until you get into a position where you are extremely profitable.

Just to show you what the profit potential is, on 1 or 2 contracts – if you take a look down here, this is our current open profit and loss. We took over $1100 of profit, on a $1600 margin. We only have $1000 of margin right now, and we’re making $407. That’s a 40% return on investment, and on margin, in just the last 2 weeks.

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