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Now we’re going to go to the trade tab. I’ve got IWM already set up in our stock and option quote screen. What we want to do is go in and pick the 70s first. We want to buy, and we want to enter this as a single trade. We’re going to be buying the double calendar, so we have to click on double diagonal and then go over to double calendar.
It’s already set us up with the 70 calls. We want to select our puts. Let’s go down to the 67 puts. It just gives us a few points on either side of the current market price. Then, we’re going to right click in this green area, and analyze duplicate trade.
Let’s just take a look. I have a small position in an IWM, so I just took that off. What I want to do is analyze this position now, and it looks like we’re dead center on this. We’ll set our slices to the breakeven. We want to make sure that we are on the May expiration, because that’s our short position, as is May. We want to take this red lock off it, so we get the current prices.
Our breakeven is around 64.71 on the downside, 73 on the upside. If we take a look at our profit chart again, 73 was resistance, and 64 was support. Unless we continue up this blue uptrend channel, we’ll probably break through this resistance, but we can probably adjust our trade later. We do not predict price. We always remember that. We don’t predict price.
This looks like a good position to put on. Let’s just take a look at our picture again. Remember, the green line is what our profit picture looks like at expiration, if the ETF stays in between our breakeven points. If it falls below that, we hit our maximum loss. Which, in this case, is only $242, on a single contract.
If we do 2 contracts, our margin requirement is $484. Our maximum profit is going to be anywhere between – let’s look at this top peak, here, which is $366, if we land right at 70. Which is also our short call for May. It’s right at the 70 peak.
What we want to do is just stretch this out a little bit. To stretch it out, you remember, all you have to do is put your cursor down here, where the numbers are, and drag it to the right. You can stretch that out a little bit. Just get a better picture of where we are.
We’re right dead center. That looks really good. We don’t have too much of a sag in our tent here. We don’t want it sagging all the way down here, because it doesn’t give us a nice profit area. I like to see this middle section nice and wide, and nice and tall, for a double calendar. That’s not too bad. On two contracts, we have a potential of $360 in profit. We’ve got a $478 margin requirement, which is nothing. That’s very good. Our profit target is going to be about 20% of our maximum profit gain, which is going to be about $120, right around this area in here.
Remember, our white line is our current profit and loss. When you set up these kinds of positions, you always start out at a loss, because the market’s not going to give you a profit from Day 1. We do have Theta. It’s 4.53, which is $4.53 for every single day that we remain in the trade. That’s very important.
When we get into adjustments, and we also get into portfolio management by the Greeks, we’ll go into more detail on that. But as long as you’re setting up a double calendar according to the requirements that we’ve determined here, you’re always going to be positive Theta.
You’re also going to have a negative profit and loss on the first day, but don’t worry, because that will improve over time. Theta remains positive, the options that you are selling, because we’re selling the Mays here. They are the near-term options, with about 30 days left. As the expiration date draws near, those will continue to decline in value.
This looks very good. Right now, it’s $2.39, so we’re going to go ahead and confirm and send this. We’ll get this off to the market. I’m hoping we’ll get our mid-price on this, because we really do have a very tight bid and ask on these. Let’s get this off. Our total cost here is $478. That is our margin requirement, $12 in commissions, for a total cost of $490.
They are working on that now. That’s pretty much all there is to it. All we have to do is wait and see if we get our position filled, and I’m hoping that we will. We like to always right click on these, and take a look at the Cancel/Replace. We’re a little bit below the market right now. If we want to get filled very quickly, we can always raise our price a little bit.
Let’s see what it does to our profitability. We can analyze this again, and take a look at what would happen if we did want to raise it up a little bit. You see where our zero line is? We don’t want our white line too far below that, because we start out at a really negative position if we do. We want to try to stay right as close as possible to that zero line, where our current price is, as much as possible. We may have to give up a penny or two as we go along, but…
If we go up to $2.44, let’s just take a look at what happens to our graph. We start to see a little separation here, between our white line and our profit. We don’t want to start off too negative, here. But a few dollars, a few pennies, is not going to make too much of a difference in our overall position.
We can go up to $2.44 if we don’t get filled here, and we should be okay. We’ve got it in there for a couple of minutes, so let’s go up a few pennies. We’ll go to $2.43, and see if we can get hit on that.
Let’s double-check our graph, for $2.43. That still looks pretty good. We’ll try that for a few minutes.
Like I said, you have to work these, once in a while. You go back in, look at Cancel/Replace Order to see where the market is. Let’s see if they want to give it to us. Sometimes it’s difficult to get filled, if the market is moving around too much. Today, it’s pretty calm. The Dow Jones is only down about $5.
Let’s see if we can get hit at $2.43. If not, we wait about 5 minutes, and then replace our order with another one.