Trading In Options – Options Trading Video 9 part 3


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This is how we start to build a portfolio trade. We don’t put a lot of contracts on. Remember, when you’re just starting out, you want to put on one or two contracts. Maybe 3 contracts, at the most. You want to give yourself an opportunity not to get hurt too bad, if you’re just starting out. You have to learn to manage these trades as you go.

The only way to do that without panicking is to do small contracts. Once you get to the point where you really know what you’re doing, you can go ahead and put in 3, 4, 5, 10 contracts at the time. But the easiest way to get started is to do these low contracts. That’s why we don’t show you other positions in which we have 10, 20, 30, 40, 50 contracts at a time on.

We’re just waiting, here, for this position to get filled. We put it in at 14:05, which was just about a minute or so ago. We haven’t had it filled yet, but we should be getting hit pretty soon, here. The market is moving around our mid-point, our limit, here. We’re above the mid. Now we’re at the mid. It does move around a little bit.

We can also take a quick look at the charts, to see what’s happening with the overall market. Like I said, if you take a look at the Using the TOS Platform, I like to set this up on the TOS charts, because I have the Qs minus the QIDs, which is a pair trade. They tend to trend much better than the actual prices themselves.

It’s almost like a tell. If you play poker, you know what a tell is. A tell is kind of like a determination of when the market is giving you a head fake, and when it’s not giving you a head fake, and which direction it’s actually going into.

If we take a look at the daily charts on this pair trade, you can see that we’ve been trending down since the middle of October last year, and the beginning of November. We’ve been trading down, but we’ve hit a potential bottom in the market here. Because it’s a pair trade, it tends to trend truer than the actual price charts themselves. That’s why I like to use this.

Let’s take a look and see what the IWM is doing right now. It’s just hanging around. Let’s take a look at our trade. We should be good. I guess that if we really want to hit this, and get this thing filled, we may have to go up to $2.45, here. Let’s see what they do for us.

Let’s go up to $2.44. If we go up to $2.44, we should get hit very quickly. And yes, we got filled. You just have to take a look at your positions once in a while, and just manage those.

Now we’re going to delete those, and we’re going to take a look at our real positions. There we are. Now we are in the trade. We are in a good spot, I think. We’re not too bad. We want to keep an eye on this. We’re starting out with a small loss, as all double calendars do. You’re not going to make money on the very first day. This is a trade that improves over time.

We have good Theta, and our Deltas are pretty neutral. Our Vega’s okay. We’re in a good position, here. Let’s set our slices, again, to breakeven. You can see that we’re still down around 64.5, 65, and 73 on the upside, which is exactly where we set our resistance and support points. We’ve been in the trading range, here.

All we have to do now is, now that we’re in the trade, we’re going to continue to monitor it on a daily basis. We want to take a look at it every single day. Just in case the Russell really starts to move around here, we want to take a look at our individual trades and adjust, if necessary.

Now we’re in the trade. All we have to do is manage it. We’re in a really good position, here. I like the shape of this tent. It doesn’t sag too far. We have nice wide breakevens. As day by day by day goes by, this white line is going to continue to move up, and up.

I will show you how it does move up, over time, to create a very profitable position for us. This is a trade that I am currently in, that I haven’t closed out yet, for the April and May expirations – which is just a few days away.

You can see, when this trade first came on, our white line, which was our current profit and loss graph, was way down below the zero line here. Now it’s moved up, so we have close to $158, $160 in profit. We’re still in very good shape here. Our tent is not sagging. It’s quite high.

The only reason I’m still staying in this position is because I got in kind of late. I had to adjust this position a little bit. I think we’re still in very good shape, here. This will continue to be profitable. We only have four days left on it, so I’m hoping that we can extract maybe another $100. We have $418 maximum profit at expiration. We have $150 or so currently. I think we can bring that up to about $300 in profit over the next couple of days, if the market doesn’t move too much. Even if it does move, either way, we can still generate quite a bit of profit here.

That’s what eventually our position in the IWM is going to look like. That white line is going to continue to increase, as long as we don’t have to adjust it, and then we’re in good shape.

If we do have to adjust it, what happens is – normally, when you’re adjusting a position, you’re going to lose a little bit of profit. But you’re going to remain profitable. In other words, your maximum profit may decrease, if we do have to adjust the position, but you will remain profitable in the position, because of the adjustments that we are making. That’s a very important point.

You want to adjust your positions to remain profitable. However, your maximum profit may decline over time. We started out with very small positions, 1 or 2 contracts at the most, and that’s how we want to manage the position. Over time, this will increase in value, and that’s our exact goal.

Now, we are building a portfolio. We have put a position on. This is for the May expiration. We’re writing the May options. We’re buying the June quarterlies. You can see our positions are here. That’s how we’re building our portfolio.

Now we’re going to go take a look at the EEM position. We’re going to be building a position very shortly in the Diamonds. We’re going to have several positions and several different indexes, because they really do act differently, at different times.

The Diamonds are the Dow Jones Industrial 30-stocks ETF. The EEM is the Emerging Market ETF. Also, we have the Russell 2000, which is a much broader index of 2000 stocks.

So, that is how we set up that. And as always, trade with confidence.


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