Vertical Spreads – How To Trade Options Video 38 part 2


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Let’s go back and take a look at IWM. IWM does move around quite a bit, but it doesn’t have the potential for a pop-up or a pop-down, because it is an index. There is no specific news on this particular index that would make it move particularly quickly, but it’s a nice trading index. It’s very liquid. We’ve done 82 million shares already, just today.

It’s very liquid. If you take a look at the options, the bid-ask spreads are very thin. It’s a penny, or a couple of pennies, on some of these. It’s a couple of pennies on others. I’m just going to cancel that.

Let me go to the cancel/replace. They’re up to $2.83 now. I may not be able to get my price. If I can’t get it at my price, I just let it go. I’m just going to cancel that order for now, and just wait and see where I can get it. Sometimes you just have to sit back and wait, and see when you have to get your fill here.

Now, it’s at $2.82. If it drops down to $2.81, I’ll put my order in again. Anyway, that’s what I’m looking at right now. If it hits those resistance points, it does get pretty volatile, as you can see. When it got down to this point, which is a prior resistance point, it just starts to move very quickly.

That’s what you really need, to make money with Gamma trading. That’s it for now. Stay tuned. I’m sure I’ll have another update for you.

Well, speaking of resistance areas, I like the way my Gilead Science, GILD, is performing. I went ahead and put in a trade for CelGene. I bought 10. I had to buy 100 shares of stock immediately, to get back to Delta-neutral. We’re slightly negative Delta right now.

If you take a look at the chart, you can see that we’re running into a resistance point. Right around those resistance points, things start to move. I’m hoping that will happen again this time, whether it goes down – like it did the first time it hit this resistance point, right around $75 – or it blasts through it, and goes up. Either way is fine with me, because with those resistance points, it does move around quite a bit.

We actually have this on my watch list. I believe the profit index was pretty good on that. I can’t access that right now, because my program that runs that spreadsheet is being updated. Anyway, we’re right at resistance. If you can get right around the resistance points, things start to happen on the stocks.

That’s what I did. I took a position on CelGene, buying the August 75 call, and the 75 put, and then going long 100 shares, to get back to Delta-neutral. We have a loss, though. I probably should have shaved that bid-ask spread a little bit more. But we have plenty of room to move, so hopefully the stock will move, like Gilead did.

Okay. I got my position on the IWM immediately filled. I bought the August 72 call, and the 72 put, 30 contracts. I have 300 shares long of stock, that brought me right back to Delta-neutral. We’ll see what happens. We have a market that is hanging right around these resistance areas. It’s either going to break through, or it’s going to fall down.

Hopefully, it will move, and move quickly. Either way, I don’t care. We make money, either way. That’s it for now. We still have an hour and a half left of trading, so I will update you at the end of the day.

We’re almost at the end of the trading day, and the market has come back. It was down close to 70-80 points, earlier in the day. Our IWM is… I have 30 contracts, and we’re long 300 shares. We’re just about Delta-neutral, and we’re down a little bit for the day, which is not too bad.

CelGene was the big disappointment for me today. It was down $116, but it’s as low as – I was down about $300, at one point. I couldn’t understand it. It looked like the bid-ask spreads between the August 75 call and put straddle had just fallen apart. I ended up paying $4.63 for it, and it immediately went down to $2.30, losing about 30 cents on those contracts, or about $300 for the straddle.

I’ve come back a little bit, now. I’m down only $115. With Adobe, I’m actually up a little bit for the day. It’s not huge, but I did get some scalping in. I made a little bit of money. I’m still down $388. If Adobe doesn’t move here… I’ll give it until Monday morning.

What happens on early mornings, Monday through Friday, during the week – there’s an initial pop on prices on options. If you’re thinking about exiting a position, it’s always good to do it first thing in the morning. Even though there are a couple of days of Theta decay here, I think I’ll probably wait until Monday morning to exit this trade, if it doesn’t move.

Gilead was a pretty good performer today. It was up a couple of hundred dollars in profits, and about $55 for the day. That’s performing very nicely. I’m slightly long 45 Deltas on that. It has been moving around, so I’m pretty happy. I can’t complain about that one.

Overall, I’m just about neutral for the day. I made a little money, and lost a little money. My big position, IWM – I’m hoping it’s going to pay some dividends here, because I have 30 contracts on that. Just a small move in either direction will put me in profit by a couple of thousand dollars.

Hopefully that will move on Monday, and I can also get some movement out of CelGene, Adobe, and my Gilead. Hopefully those will continue to move. I want you guys to have a great weekend. Hopefully, we’ll have a lot of movement and news over the weekend that will affect stocks, or move them up and down real quick.

Let’s take a quick look at the Dow Jones Industrials. I’ll bring up my other chart here. Right now, in this little trading range that we’re in, we could end up going down to retest these lows down here. If we do, that would be a great opportunity. Market movement will be pretty good.

If not, if we head up, and we hit some of these resistance points, and break through that on a nice rally, that will be good too. We’ve been in this trading range now for 11 days, which is pretty unusual – 11 days in the same trading range usually means that it’s going to break out to the upside or downside. Frankly, we don’t care which way it goes. I’m just hoping for movement. That’s it.

Alright, guys. Have a great weekend, and trade with confidence.

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