Trading In Options – How To Trade Options Video 40


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Good morning, tradeologists. Today is Day 7 of our Gamma Trading videos. Our large IWM position, which we have 30 contracts at the $72 strike price for August, is moving up very nicely. We have a nice open profit of about $700 on that this morning. It looks like things are moving in our direction.

We should be doing very well. We’re long 1100 shares of IWM, so we should have a nice profit on that today. Hopefully we can scalp quite a bit of money out of that, if the stock continues to move.

As always, I will keep you updated as the day goes down, and see if there are any changes. If there are no changes, then we’re always looking for new opportunities. We’re going to take a quick look over here to see what earning announcements are coming out today, just to see potentially, what’s going to move.

Today is the 5th of August. Let’s go down here, into the 5th. We’re just going to take a look at the list. James River Coal – these guys can move. There are other ones that we want to take a look at, that close after the market today. Let’s see if there is anything that might be quite interesting.

We’re also taking a look at ENS, as a potential for tomorrow’s earnings announcements. I’m looking at the strangle on this, the August 35 and the August 30, just to keep an eye on that. I’ll take a look at the open interest and the volume today, and see if volume picks up. If volume picks up on this – it looks like there are 1100 contracts open on the August 35, so the expectation is, I guess, is that the earnings will be pretty good for ENS.

We’re going to keep an eye on that during the day. If I take a position, I will certainly let you know. Stay tuned.

We got to the market close. What happened was, I was trying to find a position to put on. I noticed that Priceline was coming out with earnings. Their last trade was right around $117.20. If you take a look at the after-market, it’s fallen almost 20 points here. It’s down significantly. It popped up a little bit, right after the close of the day, up to $123. It traded all the way down as low as $92.

Tomorrow should be a really interesting day, to see where this is going to go. I took a position. I did something very similar to a Victory spread on this one. I actually ended up playing it on both sides. Here’s what I did. I bought a cheap, out of the money, put spread, the $90-85 put spread that was 30 cents, or something like that. It was very cheap.

When that opens up tomorrow morning, that is going to explode to at least a dollar, maybe even two dollars. If 30 cents went to $2, that’s $300, up to $2000, right there. I also have a small put spread here, between the 125 and the 120. That will explode in value as well. I think I got that for $2.50. That’s going to go all the way to $5. I’m going to make $250 on that.

I have a $145 call, and a $150 vertical spread as well, that I paid 35 cents for. That’s going to collapse down to nothing. I’m going to lose $300 on that. But that 90-85 put spread should explode in value. I also have that 20 call here, that’s going to get killed.

I’m pretty sure that my two put spreads are going to more than compensate. You can’t really tell what my profit and loss situation is yet, because the options market has closed. The only thing that is operative here is the stock itself. The stock is trading right now, down to $99, from $117.

We were up here on the profit graph. This was my breakeven, up here. If you follow this, it’s approximately 18 points. If I took my breakeven in the center, and I went down 18 points, it would be right down in here. I should be up around $1700 or $1800 for tomorrow morning.

At that time, I’ll probably close out the position, at least for the $90-85 puts. I’ll see what happens. That’s where the majority of my profits are going to be, so I’ll see what happens after that, to see if it doesn’t rebound a little bit, and try to recapture some of the profits on my call side. The majority of profits are going to come from that big position I have on that way out of the money put side.

I’ll just show you that. In fact, I had a harder time getting the call side on, than I did on the put side. With the put side, you can see that they have lowered this down, but they’re not trading. This $90-95 put spread that I have on, which I paid 44 cents for – that’s going to explode, and be way deep in the money.

This is also very deep. I had the 125, and I had the 120s. I paid $3.11 for that. That’s going to explode up to $5. I’m going to make $2 on that. This one should explode pretty good too. This one should go to at least $3, so that is $3000, right there. We’re trading at around $97.45 right now.

So, it’s a little more complicated than a normal victory spread. It’s just playing a very out of the money vertical spreads on the call and the put side, after earnings. You make a lot of money if the stock moves very quickly, and very sharply, after the close. That’s what it looks like it’s doing here. We’re down at around $97 now.

It should be a very interesting day tomorrow. Hopefully, this should explode very sharply to the downside. Once the options started trading again, I should be able to cash in my put side, at least. If there’s a rebound, I have some free calls up here. If it rebounds and goes back up, I’ll be making even more money, so we’ll see.

Anyway, that’s it for today, guys. I probably should have taken a gamble on Cisco. Cisco is trading up a little bit. Not a lot, though. It’s only 62 cents after hours, but Priceline was definitely the one that moved today. I’m glad I got a position on that, before the close.

If you guys want a little bit more information on how I actually structured this trade, we can go into that. It’s basically an out of the money put, and an out of the money call spread, with a little bit of a call and put in the center here, just to get us Delta-neutral. When this thing opens up tomorrow, it’s just going to explode.

That’s it for today, guys. Have a great night, trade with confidence, and I’ll talk to you tomorrow morning.

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