What Is Trading Options – How To Trade Options Video 38 part 1


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Good morning, tradeologists. We open up today with GILD really moving on us here, coming down quite significantly. We were short approximately 200 Deltas, so I bought another 200 shares of GILD. We locked in a profit of about $100, so far, today. It looks like it’s doing pretty well. We have a couple of hundred dollars in profit overall, that’s still open.

We are back to Delta-neutral. Let me just show you the stock. When it was down around here, I purchased a couple of hundred shares. Now it’s trading back up again. That’s the idea of Gamma Scalping – having the Deltas tell you when to buy. When it was down about 200 Deltas, I was able to go in and buy about 200 shares. Now it’s trading back up again. That’s how we scalp our profits. That’s why we call it Gamma Scalping.

If it trades back up, fine. If it continues lower, remember that since we have both a call and a put position, we are protected. We can make additional money if it goes down, because we have 10 puts. In other words, each put is equal to 100 shares of stock. Actually, we have a put position that is equivalent to shorting 1000 shares of stock.

As we gain momentum to the downside, if it should continue to go down, we have 1000 shares short. We have a 300 share long position on our stock, so we are net 700 shares short. If it should continue down, we’ll continue to make money in this position.

If it goes up, of course, we are 300 long. We also have our 55 calls. It kind of gives us a headwind up and down here.

Let’s take a quick look on our other position on Adobe. Adobe hasn’t really been moving. Now we’re down 200 Deltas here. I could probably buy a couple hundred shares of Adobe. That will get us back to a Delta-neutral position. I’m going to buy 200 Adobe.

That gets us right back into a Delta-neutral position. We’re still short 200 shares. We made a little profit for the day. We’re still down on Adobe. We’ll see how that goes today. We’re still down a couple of hundred dollars, so I’m hoping to scalp some more profits. Once again, our goal is to – if it goes down, we make money, because of the put that we have on the position. If it goes up, we make money on the call. If it goes down, we make a little bit more money, because we’re short these.

As long as we’re Delta neutral, we want it to swing back and forth. That’s the whole idea. If it doesn’t move, that’s where we run into a problem.

Let’s take a look and see where Adobe is right now. We’re dropping off here. If it continues to go down, I’ll still continue to make money here. I just have to keep an eye on my Delta. As long as it continues to go down – we’re short Deltas right now, so we should be making some money, hopefully. If it shoots back up again, we’ll have to assess the situation.

If it keeps revolving around the position we already have, with the 40 calls – we bought it here, and it hasn’t really gone anywhere, in the last couple of days. That’s what you really want it to do. It’s not going anywhere. At least, it’s not moving far enough for us – although this one looks like it’s starting to move a little bit now.

Hopefully we’ll be good with that. I’m going to give it until today, and that’s about it. GILD looks like we’re doing okay. We’re short another 89 Deltas. As long as that continues to move, we’ll be making money.

As always, I will continue to do updates throughout the day. If anything happens, you’re the first to know, so stay tuned.

Just a quick midday update here. It’s about 1:53, and I’ve been keeping my eye on the Russell 2000 – the IWM, which is the ETF for the Russell 2000. It seems to be heading into a very interesting resistance point. It’s been in a downtrend here since last October, and it’s pretty much just following the market.

It’s showing some strength. It has a couple of different bottoms here. But I want to show you something interesting. When it hits a resistance point, like it did down here, volatility increases dramatically. It gets to that point, and then all of a sudden, you can see these bars get extremely large, at these points.

It looks like there’s a tremendous amount of opportunity here, at certain levels, in which it looks like it’s bumping up against the resistance point. In this case, it broke through, and then reversed in the next day.

When it gets to these kinds of points… It’s been here, just flopping around, for about a week, or a week and a half. What normally happens during those times, is that it either breaks through strongly to the upside, or it gets shot down and goes strongly to the downside. What we’re looking for, of course, is some action, some place.

I put in a couple of orders to get the straddle. I haven’t been successful at getting them at the price I wanted. I try to get them at a price just below the market, a little bit. I’m putting in an order for 10 right now, at $2.81. I’m just going to see if that works.

I have to go over to my Analyze tab for a second though, because I believe that’s going to give us a slightly long Delta. Actually, that might be absolutely perfect. Let’s see.

It would give us a little bit short Delta, around 45 Deltas short, at $2.81. At $2.82, we’re pretty close to Delta-neutral on that. Let me go back to my Trade tab, and take a look. It looks like that is the in the money. I’m going to be slightly short Delta on this, if I get it.

I’m just going to go ahead and put that order in, and just wait a few minutes. I’m not sure I’m going to get this, because I’m just below the market. I’ve seen it trade down to $2.81 before, so I’m going to see if I can actually get it at that price. Basically, I’m just fishing for orders. I’m actually going to take a larger position than this, but I want to see if I can get my order in at $2.81, and they’ll fill it.

It’s very similar to my position on GILD. Right now, we’re still up. We still have a nice profit of $175, and $40 for the day. Actually, since we were up $60 yesterday, we’re closer to $100 today. I’m not sure why it shows that. I’m still 300 long on GILD.

The trade seems to be working out pretty well. I think the volatility that I anticipated in the biotech companies is starting to play out here. This will continue to be a good trade.

Adobe – I don’t have much hope for Adobe. I’m up a little bit for the day, but I’m still down $300, so I may have to cut this one loose.

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