Option Strategies – Options Trading Video 16


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Hey, tradeologists. We’re going to our daily review today, and basically, it’s a very simple process. As always, all we do is take a look at the numbers. We manage by the numbers. We take a look at our Delta, our Gamma, our Theta, and our Vega. We take a look at our profit and loss, and our profit and loss for the day.

We are in pretty good shape here, I think. We are getting close to expiration. Most of our trades are in the May options, so we have about 11 days left on that.

What we’re going to do is take a quick look at our Deltas. We are 45 Deltas long. Our Gamma is at -155, which is pretty normal, the closer we get to expiration. Our Theta is a nice $77, at this point, and our Vega is at 111.30. We look pretty good here. We are going to keep an eye on that Gamma, because Gamma and Theta go together. What we want to do is we want to capture as much Theta as possible.

Really, these trades are Theta-positive trades. If you want to get more information on Theta-positive trades, that’s how we make our money. We collect, on average, that $76 every single day, going forward, here. We have a nice profit open, but we are still early. This is the crunch time for these trades. 11 days before expiration. This week, our profits are just going to explode.

We have $330 open on a profit figure. We have $174, just today. If we go over to our Analyze tab, we can see that our white line is current profit and loss position. We’re not quite on center, but we’re still looking pretty good here. I think that we have a little bit of room to move in the upside. I’ll show you the VIX in just a second.

All we do is take a look at this picture, and take a look at the Monitor tab and see exactly where we are today. All of our numbers look good. Everything is positive. We’re starting to get into a really positive position, here.

Remember that this white line is our current profit and loss, and that will continue to move up, the closer we get to expiration. We only have 11 days left. This last week before we get into expiration week is going to be absolutely critical. We should be up around here, just over the $1,000 level, before Friday. We’re going to continue to monitor this trade.

Hopefully, we’ll get an opportunity here – if we start to get toward one of our breakeven points – to add to our position. Especially during the last week before the week of expiration, that’s a good time to put on some trades. We’ll just crush the Theta on that.

What we want to do is just keep an eye on this, and take a look at our picture. Our picture looks really good. We have plenty of upside room, and we have plenty of downside room. As we get closer to the expiration date, especially the expiration week, which is coming up at the end of this week – today is May 5, on a Monday. This line is just going to start shooting right up. I think we’re going to be in absolutely excellent shape here.

We don’t have to do any adjustments to our positions today. I think we’re in really good shape. The reason for that, I think, is because of the VIX. Remember, the volatility index really gives us a hint of where the market is going to go. When this goes up, the market goes down. When this goes down, the market goes up.

It acts as a contrary indicator. It indicates fear in the market. You can see we have these two peaks back here, on January 22 and right around March 17. We have these two huge up days on the VIX, which meant that they were huge down days in the markets. Since then, we have traded down. We had a bit of a trading range in here, between 22 and 25, which was very nice. That was last month. That was a great trade last month. We did very nicely in there.

We have since broken down, below the 22 level, which was the prior support. This is probably going to act as resistance, at this point. We have support down here, at 17.50. We are probably going to be trading in this range here. I doubt very much, at this point, that we are going to go below 17. I think that we are probably going to be in this range.

This will be absolutely perfect for our position, because if the market goes up or down, we’re going to be in pretty sweet profit territory up here. Remember, this is our expiration line, the green line. Eventually this white line will move up to meet this green line, and that will be exactly what our profit is going to be, for the month.

Our maximum profit is going to be anywhere from $1850 to probably around $1100 or $1200 for the month. Remember, that’s only 1 or 2 contracts. Each one of these positions only has 1 or 2 contracts on it. Our open profit is $334, on 1 or 2 contracts, on each one of these positions.

If we had 10 contracts, we would be up about $3000, right now. There is plenty of profit potential. This is our demonstration account. I don’t want you guys to think that you have to trade in large lots to make a lot of money, because if you’re interested in doing these types of positions, you only have to put up maybe a couple of thousand dollars in margin to make a thousand dollars a month.

This is not part of the daily review. I just wanted to give you an idea that when the prices do move against our breakeven points – and they did this past month – that gives us an opportunity to adjust our positions and add to our positions. That’s why capital allocation is so important. We don’t put all of our money into these trades at the beginning of the month. We let them run, and then take advantage of the opportunities, when the prices do run against our breakeven point, so we can add to the position.

In the beginning of the month, we had maybe a $1,000 profit potential on these positions. Now we’re up to almost $2,000, because we had the opportunity to adjust our positions. When the prices move against us, they are opportunities. They are opportunities to add to your position.

Now, you can see that in fact, we have almost doubled our profit potential for the month. We have added an additional $2,000 in margin. We started out with $1600 in margin. We’re almost up to $2000 in profit potential.

That’s it for the daily review. We’re doing very well. The closer we get to expiration, this Theta should get up to around $200 a day. That’s only with 1 contract on each one of these positions. If you were doing 10 contracts, your profit would be close to $1800 a day, or $2000 a day.

The profit potential is definitely there, in this kind of business. Once you learn how to manage your position based on the numbers, you have a good profit picture here. It’s only a matter of size, as far as how much money you want to make, and how much risk you actually want to take.

As always, trade with confidence, and have a great day.

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