Virtual Options Trading – Option Trading Strategies 34 part 3

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Now the Deltas are changing slightly. If it drops down to $35.60, we’re going to buy 200 shares back.

You can move these around any way that you want. We’ve got to go down to $35.60. We can just type that in, if we want to. We are going to make that a “Good to cancel” order. Basically, what we can do, is enter these orders. If these sell another 160 shares, and it goes down to $35.60, we’re going to end up buying shares. The only thing that you really need to keep an eye on is if the Deltas change, before you get these orders in.

In other words, as the stock drops, your Deltas are going to be changing. Right now, it’s already changed, to $35.59. We need to buy 220 shares. It does change around a little bit, but you could enter these orders…

Let’s say you have something you want to do. You don’t really want to play around. You can enter both of these orders, if you don’t have time to sit down and look at your stock. As long as you have your prices right, make sure that you look at your Analyze tab here. You can also do this based on the chart itself.

If other words, if you’re a chart person, and you’ve identified support and resistance points on the chart, you can also let your limits to those areas. In other words, let’s say you think that this is a support area, right here. You think this is something like a resistance area, right in here.

If you think we’re going to be in a trading range for a while, what you can do is, you can set your prices to purchase stock, when it’s at $34.69, and sell it, when it’s at $37.07. That’s a pretty wide range in which we can actually sell this stock.

If you think those are important support and resistance points, you can actually place your orders into “Buy and Sell,” at those levels. Remember that your stock position is covered. Your short position is covered by the 10 $35 calls. You’re long the $35 puts, so you’re protected in either direction, here.

One thing, before I do this: You can enter these as orders right now, if you want to, and just let them run. When they’re filled, you can always enter in new orders, in order to capture the price movements. I’m not going to do that right now. I’m going to delete both of those.

When I want to do is show you how we enter these positions into our worksheet, to keep track of our possession. I’m going to go over to Sheet 2. We got 10 contracts. We have to enter the straddle price. We got the straddle price at $3.15. We take a look at our order book, here. Today’s date, which is July 26 – we have 18 days until expiration. We want to make sure that we keep an eye on that, at all times. The closer we get to expiration, the more opportunities we will possibly have, to trade this stock.

We sold 390 shares. We sold it at the price of $36.64. We are net short 390 shares right now. Now, when we go into a position, when we buy those shares back, and we bought those and we put them in here, we include our gross profit and loss, and whatever fees that we incurred here. We had a $5 fee, I believe. Let’s just go ahead and see exactly how much that is.

That was $5.40. It’s relatively inexpensive to trade stock, rather than options, all the time. What we do is, we keep a running P&L. The actual cost of these was $3150, for the straddle. Now, what we want to do is, we want to keep the current market value on the straddle. Every once in a while, you can come over here and take a look at what the current straddle is selling for. We had to go ahead and buy this straddle again. If we wanted to sell the straddle, we would get that priced at $3.05. Obviously, the difference is the bid and ask spread, but we’re not going to fill that in yet

What we want to do is just log all of our information, so that when do a trade, we make sure that we keep track of our running P&L, as we go through the trade. That’s all we really want to do. Right now, that’s what our position is. That’s our straddle price. We bought 10 of these. Our symbol is AVP. Our date, our total cost… What we’ll do, is because that is our cost, the $31.50, as we make a profit on our Gamma trading of the stock, we will enter our gross profit and loss into each one of these, and the running P&L, and subtract that from our cost of $31.50.

In other words, between now and the expiration, in 18 days, what we want to do is not only have a value of the straddle – ideally, we would like to have some value left in that – but we would like to be able to make more from our trading of the stock, as we get closer to expiration. We want it to go above and beyond the $31.50 that it cost us to enter into the straddle, to make a good profit on this trade.

We’re going to save that, and we’re going to come back to this. If I have to make an adjustment to this position today, you guys are going to be the first to know, because that’s exactly what we’re doing. We are going to keep an eye on the Deltas. We’re already short 43 Deltas, so the stock has moved down a little bit, from where we shorted it, at $390.

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