Index Option – How To Trade Options Video 34 part 4


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This is the way I set it up. Once we get to the point where we’re about 200 Deltas short, I’ll buy back some of those shorts that I put in there, in order to lock in the profits. You could do it at 100 Deltas. If we’re short 100 Deltas, and the stock goes down, you could buy back 100 shares of your stock. You could do it every 100 Deltas, if you want. You could do it every 200 Deltas, if you want. As long as the stock continues to move, that’s the absolutely ideal situation for us, here.

That’s this strategy. That’s the way we’re going to be doing this. Hopefully, the stock will continue to cooperate, and move in a good manner, so we can lock in some of our profits here, based on our short and long positions.

That’s it for now. Trade with confidence.

Hello, tradeologists. We’re towards the end of the day here, and we’re just taking a look at our position on AVP. Basically, what we have here is, we’re short 100 Deltas. If we take a look at the risk profile, we have a small profit for the day. I would like to lock that in. Since we’re short 390 shares, and the stock has been down… It looks like it’s going to be closing down.

We’re going to take a little bit of a profit here, and close 100 shares, out of the 390 that we’re short. That will give us about a $50 profit for the day, which will help offset the Theta decay. The stock didn’t move that much, but you know what? That’s fine. We’re just going to close that out. We bought $5 back, and we’re back to Delta-neutral now.

We’re still 290 shares short. We locked in about $40 in profit for a day. Hopefully, we’ll see what we can do tomorrow. In the first day, we just treaded water. The stock really didn’t move that much. It did come down here. I could have covered a little bit here. In hindsight, that might have been a pretty good move. You never know it’s going to continue lower or not.

But we captured a little bit of profit today, and that at least offset our Theta decay. We are back again, so that we can continue to Gamma trade this for tomorrow. $40 a day profit so far, and that’s where we stand. We will continue to look for new candidates.

I already have a couple more on here. I put DUG, and I put EEM, which are a couple of ETFs, on here, for some potential candidates that we could take a look at, for Gamma scalping. Let me just draw your attention to one thing here, that somebody was asking me about.

Right now, we’re Delta-neutral on the position. We’re short 290 shares. We have 10 contracts on the straddle. Generally, when would you know when to buy your shares back, or to sell some additional shares, or to buy shares in the stock? In other words, how would you be able to determine what the intra-day move is, before you would actually have to make a purchase or a sale?

Well, an easy way to do that, is to go back to our Probability Analysis tab here. Take what the current range is. The probability of touching, which is the current range. That’s $41.64, minus $31.12. That gives us $10.52. Then, we just take that, and we divide it by the number of days that are remaining in this particular option cycle. There are 18 days left, divided by $10.52.

That gives us a 58-cent move. Basically, what you can do, is you can say, “Okay, if it moves up 58 cents, I’m going to adjust my Deltas. If it moves down 58 cents, I’m going to adjust my Deltas.” Every single day, you can do this. You can anticipate the probability of touching number, and divide it by the number of days remaining in that August expiration cycle.

If you want to, you can probably go over here to your chart, and we can call this the intra-day expected move. We could just list it here. The current date is 58 cents. Then what you do, is you just take a look at the current stock price. If it goes up 58 cents, that’s when you would look to sell or buy back some shares, if it’s on the downside.

That’s the expected intra-day move, based on the probability chart. As we get closer to expiration, the probability of touching between these two points is going to get smaller and smaller. The actual probability of intra-day movement in that stock is going to get smaller and smaller, as well.

We can say right now, with some degree of probability, that a 58-cent intra-day move is probably normal, for that stock. That will help us determine when to buy or sell shares.

I hope that was useful for you. We’re going to take another look at our position, here. We are Delta-neutral, just slightly long Delta here, at the close of the bell. We have our $35 calls and our $35 puts. We have 290 shares short, on our in-stock and our inventory. Tomorrow, hopefully, we’ll be able to capture some additional profits. We had a small profit today, of approximately $40, on our scalping position.

Hopefully tomorrow, we will be able to do a little bit more. Stay tuned, and trade with confidence.

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