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Because we have weekend risk – we don’t know what is going to happen on Monday morning – we put these QQQs on, in order to manage our downside risk here.
Now we have quite a bit of room to run. This is actually not an accurate picture, because if those QQQs start to – if we do go down, those QQQs are going to increase dramatically in price, and give us a fairly substantial profit. If we go back up, and we go up 100 points, we’re still looking very good here.
This entire insurance policy, on the QQQs – even insurance companies have re-insurance companies, where they go out and they take on insurance policies to manage their risks. They go out to a re-insurance company.
That is what we are doing. We are taking on insurance for the weekend. If we don’t need it, we’re only holding it two days. We are going to sell it out on Monday morning, if everything looks good, and prices are stable. We’re just going to take that insurance off and say, “Thank you very much.” How much did the two days of insurance cost us? $100? Oh, okay. No problem.
We can give up $100 of profit if we go up, right? If we go up, and the longer we can hold this position, we’re going to accumulate another $1000. Let’s say we ended up right here. We’re going to accumulate another $1000 in profit. We can afford to spend that $100 on insurance over the weekend. Believe me, it’s worth it.
This is a bit of an advanced technique, especially going into option expiration week. Especially during option expiration week, if you haven’t closed out your positions, and you have positions going into expiration, now you have price risk more than any of the other risks I was talking about.
This is the point where you do not want to allocate any new capital. It’s too late for that. Now the thing that you need to do is manage your price risk. If you have to give up some of your profits in order to have that security of mind that your position is not going to get killed, if you have price risk – then that’s what you do.
That is basically what we’re doing. We’re going to give up a little bit of our profits to buy ourselves some insurance, and when we don’t need the insurance anymore, and things look like they have stabilized, we’re just going to sell out our insurance policy. It’s worth the $100 over the weekend to have that insurance policy, but we don’t need you anymore. If we go up, we’re back toward the center. If we go down, we cash in our insurance policy, collect a nice profit, and close out our positions for the month. We go on to our next month’s position.
How much money can we make? It depends on how much the market falls. If the market falls dramatically, this is not an accurate picture. It doesn’t take into consideration the volatility that the short-term options are going to experience, and also the Delta change.
Remember that this is probably – if we fall 250 points, we’re going to be closer to a $1200 or $1300 profit here. Then, we will just close all of the positions out. That’s one thing that this will not analyze.
If we did not put these on, what would happen? If we get down far enough, we could be in a position where we’re not only losing money on the current position, but even at expiration, we could get to the point where we are losing money. And what do we want to do? We don’t want to lose money. In order not to lose money, we manage our risks. That’s how we manage it.
Well, that’s it for today. This is how professional traders will look at their positions. They will manage their risk, based on the type risks that they perceive in the market. The great thing about the market – especially options – is that they are highly flexible. There are all kinds of things that you can do to manage your risk. It is a business, remember.
Every business has to manage their risk; whether it is the bakery that has to buy enough flour now to last them for the next 3 months, so they don’t get hit by the price increase, or it’s your trading business that has to manage the risk, so that you’re not hit with a huge down-draft on Monday morning, while you’re holding your positions over the weekend.
That’s it for today, guys. I wish you all the best, and I will follow this up with a second video on Monday morning, after we take a look at how price action is opening on Monday morning. Trade with confidence.
Good morning, tradeologists. Today is Monday, May 12. What we’re going to do is take a quick look at our trades for today. We’re going into expiration week, and as I mentioned, we had a little insurance policy in the QQQs, just in case we had a big drop in the markets over the weekend.
It cost us $65, but that’s cheap insurance. We’re already up over $140 for today. We have an open profit of $935. Let’s take a quick look at our Analysis tab.
That $65 insurance was well worth it. We made up more than that just in the profit today, as we opened. It really didn’t cost us anything at all, and the insurance was very good for us.
Here we are today. We’re up $135. We are moving back toward the center very nicely on our position. We are going to keep a close eye on this position, of course. We are in expiration week. I normally like to get out earlier. However, we’re going to try to squeeze every little bit if profit out of this position, out of as many positions as possible.
We have the positions on the Diamonds, the EEM, the IWM, and the SPY continuing to go.Let’s take a look at each individual position, just for a second. Before we do that, let me just show you something.
We want to take a quick look at the VIX. Let’s take a look at where we are. We went up here a little bit – we’ve been dropping significantly. I thought possibly, we could jump up here and re-test this level around 21.50-22, and that didn’t happen this morning. That’s why we closed out our insurance. We bought the QQQs as insurance.
We closed those out early this morning, when we saw that in fact, the market was not going to drop like a rock and re-test those VIX levels. We’re falling back down again. I think we’re going to re-test these 18 levels. We should be up for the day. We’ll see, and keep monitoring our position.
At this time, we don’t have to do anything. As long as we stay to the up-side, we have plenty of room to move to the up-side, here. We’re going to continue to make a profit on this position today. We should be close to $1000 in open profit.
Remember, we’re only trading one or two contracts here, so this is pretty good profit. All we have to do is be patient and wait. This white line here, which is our current profit and loss position, is joining the green line, which is only 5 days away now.
Let’s take a look at our Trade tab. We can see that there are only 4 trading days left in this position. Ideally, we would like to be in the center, and all of our positions would expire absolutely worthless. That will give us the maximum profit.
We’re just going to have to sit back, relax, and monitor. Normally, during a trade, when you’re putting on trades 30-40 days ahead of time, you don’t really have to be that concerned with the day-to-day market fluctuations. As we get closer to expiration, that’s where you really want to pay attention to your position.
That’s what we’re going to do, if you want to extract as much profit as possible. However, I do not recommend holding positions into expiration week. Price is the biggest risk during expiration week.
Let’s take a quick look at our Monitor tab for a second, and take a look at our numbers. Our Delta is a very nice positive 94. Our Gamma is -190. All Gamma really means is that it’s the amount that the Delta is going to change, based on the overall position.
Theta has increased to $129 a day. Going into expiration week, we should expect to collect another $128, every single day that we’re in expiration. Our Vega is at 121. It’s a positive number, meaning that if the Vega goes up, we will increase our profits by $121.
However, given that Delta is also positive number, they kind of neutralize each other there. What we want to do, and our current profit open is $925. We want to just take a look at our Analyze tab here. As long as we can to move up, where the Dow Jones is up about 30 points now – if we continue to move up, we’ll do very nicely here.
We will continue to keep a close eye on the market. We want to be able to stay in this center position.
Alright, tradeologists. Trade with confidence.