Three Variables to Consider When Trading Options | Managing an Options Portfolio

[Music] [Music] good morning and welcome everyone my name is cameron may it's 9 30 eastern standard time on a wednesday morning and that means that it's time for our weekly ongoing series of discussions called managing an options portfolio we have a tall task ahead of us we have the ever-changing needs of a big hefty portfolio of lots of different options strategies to attend to and plus we have to pick out a new trade we have several trades that we want to review today a new one to place we'll set a more precise agenda in just a moment but before we can do that i just want to say hello to all of our returning veterans already chatting up the uh chatting it up in the chats let me say hello to all of you hello there wayne and kristen of ej lyle jewels charles michelle michael robert sandeep vjtd uh who else is here yoko alexandra lena john milton frank wayne the list goes on and on and on thanks for being here week after week if you are here for the very first time i do want to welcome you as well if you'd like to chat in let me know that you're a first timer on my webcast i always do like to see who my new audience members are if you're watching on the youtube archive after the fact enjoy the presentation but be aware that you're invited to join us live on wednesday mornings 9 30 eastern is when we kick things off and finally we do have my very good friend pat malali hanging out there in the chats with us his role is to address any questions that i can't get to just in the natural flow of the presentation i'll try to tackle as many as i can but i can't always get to them all so let's get right into it we're going to start things off in the fashion we always do we always want to consider the risks associated with investing these risks are real so a quick reminder and actually as i transition to those risks i'll also give you a reminder i don't do this very often but a quick reminder do follow me on twitter if you would i like how we can make kind of a personal connection through that platform it's not always available through a webcast sort of a format so at c may underscore tda if you want to follow me on twitter but this is important information risk information bear this in mind the content we're about to provide is intended for educational informational purposes only options are not suitable for all investors any investment decision you make in your self-directed account is solely your responsibility transaction costs are important factors and should be considered when evaluating any trade all investing involves risks including the risk of loss and while this webcast discusses technical analysis other approaches including fundamental analysis may assert very different views all right so here's our agenda for the day three items on the agenda number one we want to manage our current position so if you haven't been on in one of my webcasts before what we attempt to replicate here is the the sorts of difficulties the sorts of challenges that might confront a self-directed options trader as they attend to a portfolio of options trades with lots of positions on we have an iron condor over here got a butterfly over there we've got a vertical spread there on all sorts of different stocks all sorts of different expirations it can be quite a bit to keep an eye on and uh and we don't even know necessarily which way is up or down do we want the stock mark to go up or down what's going to happen with the passage of time how is volatility going to impact us so we attempt to replicate that here through an example portfolio and as market conditions change as we restructure our portfolio we place new trades to try to realign things with current market conditions and as we see how those market conditions might change into the into the future so we're going to manage some of our current positions that's going to change the structure of our portfolio so we're going to gauge the new portfolio new meaning slightly changed because of the position that we managed its exposure to price time and volatility we're going to measure that using the greeks and see if we can align that with current market conditions and that's going to guide us to a new example trade for the day right so and philip you say you're already a twitter follower excellent yeah i do see some of you on twitter when you reply them to my tweets i try to get in there and reply right back this is that's something that we can't always do in a format like this where we only have 45 minutes or whatever to spend together all right but there's our agenda for the day manager close out some positions check out the portfolio place a new trade so let's go to it going to our platform here's how things stand right now portfolio is doing just fine there are some positions that are that are not cooperating as well as others there are some that are coming up closer to expiration there's some that are showing new developments on their charts let me show you three that that i think we might need to pay attention to this morning number one we have disney and look at this in this quantity field it's all blank except for disney that's because with the rest of these as we open those up you can see that we have options positions with disney though it's just a long stock position and this is not intended to be a stock portfolio so what has happened here is that we had a covered call on disney and it expired the call expired and we're just left with 100 shares of disney so what do we do with those let's make a decision um we could just close out the disney shares we're up a little bit on those shares 114 bucks as of this moment or maybe we could sell another covered call there are other things we might do but let's go have a look let's see what's going on on the chart of disney here we go so disney's been chopping around back and forth and for some for some traders who like to sell covered calls these are these are not bad conditions for a stock if the stock is really not gaining much but not losing much either then the stock it's not helping or hurting but at the same time if we're able to sell calls consistently then we have that hopefully a potential income stream there right so what do we want to do with disney if we're bearish maybe we just want to dump it if we're neutral or bullish maybe we sell another covered call and as i see this is just one technical view of things but overall you can see disney's really just been going mostly sideways i'm just drawing some rough lines to identify yeah we've just been moving back and forth looks like we might be closer to this uh this top side a couple of exceptions where we went a little bit higher but maybe there's a little bit of resistance up there might not be a bad time to sell another covered call so let's do it how about for disney let's go for a higher probability call i'll go to the trade tab and how about for this one um let's just put this one out 17th of september disney's been moving back and forth fairly quickly so going out really far in time maybe that's a little bit much let's see if we can sell a covered call for the 17th of september hartman says the implied volatility is so low for a covered call that's a good observation we're going to come back to that in just a moment but yeah premiums are not what they once were right or even what they were a week ago true okay so art man saying uh they might choose to just take the money that's great as i place these trades i would hope that you're looking at this and thinking to yourself i don't know if i would manage this in the way that cameron is doing in his examples that's okay that's perfect but with disney though let's look back at this chart alright resistance looks like it's 181 something like that we could even come down here aside from these two pretty prominent departures looks like resistance line could be drawn pretty easily right there around 180 ish right i wonder what that's offering here the 180 call we could sell for maybe 2.50 2.55 cents that does have a 40 chance of expiring in the money let's look at the next delta if we want to go for a lower delta go for a lower lower reward but lower risk this looks like we collect maybe a dollar seventy that's about one percent on disney for the next 23 days and the stock would have to go above 180 to 180 250 before we get called out and even if we were called out to go to um hartman's point if we were already looking to sell the stock anyway is it a terrible thing to get called out maybe a trader is perfectly comfortable with that how about we do that i'm going to sell this 182 and a half call let's click on that to sell we only have 100 shares so we need to make sure that we only sell one contract here the multiplier on these contracts is 100 there we go take that down to one contract selling the 182.5 call let's see if we can get a little bit better phil how about we try for a buck 65. the markets are open

these things are changing fairly rapidly and anytime we submit a limit order there's a risk the order might not fill but let's let's submit this quickly selling that one disney call trying for a dollar sixty five credit there is a transaction fee associated with this trade 65 cents in this example and let's send this order off all right and we sold that we're done now one other thing that i did want to check on i have two other trades that i want to look at but there was something else i wanted to check here we do have a working order from yesterday for a visa you might want to go back and watch this archive if you didn't see the logic of this but it's just basically another covered call okay this was discussed in yesterday's webcast generating income in your portfolio but in that webcast we were looking for three dollars on that covered call it's not offering three dollars anymore it's about 258. we might need to quickly change that i'm going to cancel and replace that order and i'm going to nudge that down to something that might be more quote unquote realistic in today's market conditions yesterday three dollars might have been more realistic now it might be more like 258 260. let me confirm and send that order another transaction fee that we need to consider send that order off all right we sold that for 263 and as we oh as we attend to these other two trades i also want to note that a chat just came in that is offering a survey and we don't always get to do this in these webcasts so if i if i can make a suggestion take advantage of this if you would click that survey link you have to do it right now while the while the webcast is live if you click the link it's going to pop up the survey obviously we can't fill out the survey terribly honestly just yet because we don't know how the webcast went but you can just hide that survey window behind the webcast window and get back to it after the webcast is over to give me your comments but if you've never filled out one of our surveys before it's just three quick multiple choice questions and a little comments box so i get that data i read those comments and it helps me improve my webcast if you could fill that out for me that would be fantastic all right in any case silas would say hey let's sell that much lower delta the 13 delta or just maybe just look for a little credit little tiny credit but a very small probability of actually getting assigned on those contracts right okay well let's go back to our monitor tab but yes lots of different ways we might have done that that disney trade and so um i encourage you to think through how you might have done that next up we have uh salesforce salesforce is interesting i'll be interested to see what's happening with it this morning you'll notice we have a profit on salesforce crm is the symbol 735 dollars and what we did on this is we own a long call and we own a long put both of those are sept the 17th of september both are the 240 strikes so what is that well that is known as a long straddle basically when you buy a call and buy a put at the same time we're hoping that the stock just makes a strong move in one direction the other one is going to lose some money the other one can make some money but if we get a strong move with the long option we can only lose so much but we can make a lot right and actually that's already happened so what's happening here is we bought the call for 14.50 it's now

worth 22.80 so it has a nice profit going on but at the same time we paid 7.45 cents for it it has lost not quite five bucks four and a half dollars of value so it's underwater that's okay we plan to lose money on one of these we just wanted to make more money on the other one and that's working and we actually played we actually played we placed this trade in anticipation of an upcoming earnings but we did it a few weeks in advance so if let's say volatilities rose during that time that might help these uh it might help these be more profitable might is it's a key word in this case it seems to be working out the earnings haven't happened yet though so here's the decision we have to make let's go to the charts let's go to crm and you can see right here when are the earnings after market when today so a trader in this scenario is kind of convinced or confronted with a decision we have a profit on this position already it's not a bad profit if we go back and we do the numbers on this so we spend about 22 dollars it was actually 21.95 cents combined between these two uh options um and now we already have a 750 dollar profit do we just take the profits right now hmm or do we wait for this earnings announcement if the earnings announcement comes out and we get another pop from that earnings announcement could really help that call out on the other hand if it drops down maybe it helps us recover some of the gains on the put but the call could get massacred what's what's the correct choice here it's up to the investor but this was actually something that we discussed when we place this trade if we get a profit before the earnings maybe we can just harvest that harvest that profit if there's not a profit we can wait till after the earnings and see if that helps us out so rogue dragonrider says take the money and run actually that's what we're gonna do with this one we're gonna take this trade off okay so to close that out right click create a closing order and sell that straddle mary's saying she would wait for the earnings that's okay it's another way to do this right we've already made about about 15 20 on this trade so i'm going to select that to close this out looks like we can close it out between 25 30 and 25 74. how about we back off this let's see if we can get out for 25.70

i'm only coming off the mid a little bit so i don't know we might get a fill let's click confirm and send trying to sell that for 25.75 what do we say 25.70 there are transaction fees and closings out 2.60 cents and let's send that order off see if we get a quick fill i'll circle back to that one okay i'm going to let that work up here in our working orders but we have one more position that i wanted to have a look at today that's our tesla trade tesla not doing so well we're 1400 underwater it is our worst performer to this point on tesla it's a really simple trade we own a call we own the 710 call the stock is trading look at this it just now skipped to 7 10 and 9 cents if it stays where it is we're under severe threat of just having this thing expire worthless if it were to just tick down a little bit we have 23 days left on these contracts time is working against us let's see if we want to keep a call on tesla or not i'm going to go to the charts and what do you think so here's where we are right now there's where we were a week ago a week ago we were not doing well with tesla but it's been coming up and and the numbers here the the scale of the way that tesla moves we want to bear that in mind because just you know a week or week and a half ago this was a 650 dollar stock it is now a 710 stock so this is something get up and move it seems like it's coming up on maybe a resistance area it it has been as high uh in the last six months as high as 780 dollars what do we think should we hang on to that see if we can get back up in that 780 range i think that there are a couple of ways this could be viewed technically you look at this and we have this nice upward trend that has developed we've been running up and pulling back running up and pulling back running up and pulling back and now it looks like we might be mid run does that make sense like if we were to take this last run up just going to duplicate that and tack it on right here where would that take us it takes us right back up into this range that might allow us to get out with a significantly smaller loss maybe even a gain right what would you do diego says what's the break-even point well if we were to wait for this to hit expiration this is the 710 call the stock or the the trade was for 42 dollars basically so about 752 7451.95 would be the breakeven point on this if we were to wait till expiration calculating a break even before then is always tricky sharon says how how are we doing with the time decay well so we have 23 days left let me give you a quick rule of thumb when we have whatever time um amount is left on a contract there's a general rule that might be applied you might think oh if we have 23 days let's let's go with 22 just to make the numbers easy if we had 22 days left on the contract you might think well if we held on for 11 days that's half the time so we would experience half of our time decay right actually no mathematically it works out that in the first half of the remaining time we burn up about 30 percent of the remaining time value there's about 70 that happens in the latter half so so if we a way to look at that is okay if we if we want to hang on maybe we want to only hang on for about half that time that minimizes the time value damage i hope that makes sense um but with this contract sitting right at right at um and look at this it actually just slipped back down below 710 but it's right at the money that is fully exposed with this now being slightly out of the money its remaining value the 27.25 that's the

value of our contracts right now that is 100 exposed to time decay okay all right rogue dragon dragon writer says i agree with peter what does peter say i would hold at least another five to seven days see if it keeps up that upward moment momentum and i think that's what i'm gonna do too peter yep i think that they're gonna be those in the audience who say i wouldn't manage it that way that's okay it's all this is why we do this to get the to get the gears turning right yeah i think what we'll do is we'll wait to see if we can get a little bit higher obviously there's that expiration we'll keep that in mind there is definitely a risk to doing this we have time working against us if we move up though that could easily overcome that could potentially overcome that just like that however if it goes down now we've got a couple of factors working against us right okay so there we go so let's uh let's call that a decision made we've looked at our three trades the rest the reason why we're not looking at them is that they they're cooperating nicely they're not anywhere close to maximum gain so you know if something were you know within a few pennies of maximum gain we might take that trade off somebody says can we look at the microsoft trade uh microsoft we just have a we have a long call diagonal so we need to be below 295 as we get toward that expiration we've actually crept a little bit above that and that can make some people nervous there is an assignment risk there as you go in the money there overall though that trade is doing well up twelve hundred twenty seven dollars all right so we've made some trade decisions we've added a position here things have changed a little bit it's certainly changed since our last discussion last week so what we need to do now is gauge how our portfolio is set going forward see if it still aligns okay looks like okay there's that uh that straddle that we just exited that was timely but any case as we make those changes to our portfolio that the structure of the portfolio changes the biases of the portfolio changes or change so let's let's gauge our portfolio and see if it's where we want it to be or if we need to make some refinements all right so in this webcast what we do is we benchmark our portfolio against the s p 500 so that so when you see this box checked for beta waiting let's check that box for our benchmark we use the s p other people can use other indices that's okay but automatically the system will do is it's going to weight the expected performance of each individual position against the s p 500 so as i look at this column it says delta this this gauges for us how our portfolio is likely to perform if the s p were to go up a single point from this from right where we are right now what would happen to our portfolio if the s p were to go up one point well we'd be positioned to make about seventy three dollars on that one point move up okay one point is not a big move on the s p if you look at the s p we've come up from 4371 up to 44.89 that's over 120 points it's actually right about 120 points in five days not one point 120 points okay so each one of those very likely was producing a bit of a a profit for us the question now arises as we're planning a new trade let's say we're about to place a new trade we have quite a number that are that will be expiring on september 17th let's structure a trade that goes out a little bit further okay let's go out to at least october 15th where do we think here's the question where do we think the s p is likely to be as we cross let's say the october 15th expiration date what do you think we've had quite a cooperative market for the bulls is that a guarantee that it's going to going to continue in that direction no however we've continued to structure our portfolio to benefit from continued bullish market conditions and that seems to have been the right thing to do through um most of the year and really we've been doing this for we've been hosting this webcast for a couple years now and that's been kind of the theme market conditions have been generally bullish so we've kept a bullish portfolio and vj i tend to agree with you markets are it's not a guarantee but boy with this trajectory even if we slowed down where could we be i think uh a technician might not might not have to stretch much to say that we're likely to be higher from here right or at least say maybe they have that conviction all right well let's start to set some objectives for today's trade sample portfolio objectives for a new trade number one if we're bullish what do we want to do with that portfolio's delta right now it's at 71.97 that's bullish let's look to increase that with today's grade all right that's one of the three primary variables that affect the performance of an options portfolio price measured by delta time measured by theta what do we do with time well in this webcast in the management of this example portfolio we try to maintain a positive theta this hasn't happened to us in a while we have a negative theta it means that some of our positions are working against us um maybe they're not in position where we want them to be but we're going to with it with the theta negative 1950 let's increase that let's try to take that from negative and push it toward positive maybe move it into positive territory and then we finally have this third decision to make our vega is our portfolio's exposure to volatility levels moving sometimes volatility levels are low and then they rise other times they're high and then they fall and that can affect the performance of an options portfolio as measured by vega vega starts with v so does volatility let's go see what's happening with the general volatility of the s p 500 so here's the vix this is a volatility chart of the s p 500 and you can see that sometimes volatility is high and falls sometimes it's low and it rises and we've been going back and forth like this and i'll tell you since we met last week volatilities have volatilities have really dropped right that's not good when we have a vega of 308 what this is telling us is that if volatility were to drop by one percentage point we may lose in in the form of an unrealized loss about 300 bucks on our portfolio that's not good because in just this last week we've fallen about five points maybe six okay so um what do we think about this volatility level now though well this is really getting pretty close to the lowest level so i didn't intend to do that let's zoom back out there we go pretty close to the lowest levels that we've seen over the last six months obviously there are some exceptions there but they don't tend to last very long so let's kind of i'm going to draw a box around all the volatility levels we've seen that were lower than where we are right now so you can see here was a week or two a couple of days it touched lower volatility levels there was a good stretch of about you know a month maybe a couple of months where we stayed at lower levels so it's possible to go lower a lot lower well it hasn't done that in the last six months could we go higher from here yeah what would you do that's my question would you think you'd dial down the volatility is that volatility may be a little bit too low or too high for for comfort levels or we increase it in anticipation of maybe this volatility coming back up again so let's go back to our monitor tab and with the with the volatility at plus 308.70 and yes it's changing markets are open this one's a little bit more of a this is a kind of a tougher decision isn't it last week our objectives were to increase increase and decrease actually each one of those happened to turn out to be the right decision to make we increased our delta last week and the markets went higher that's good we increased our theta exposure and time went by that's good we decreased our vega this was actually an even higher vega last week so it would have had a stronger negative impact had we not taken action but we did take action that turned out to be the right decision so what do we want to do tony's vote is for decrease tony i'm kind of in your camp here i think we decrease this again it might not be might not turn out to be exactly the right decision but if volatilities continue to fall and there is room down there and it could fall even further than this historically we've certainly been at lower levels than even the bottom side of this uh green box if that falls that volatility is really putting a drag on the potential performance of this portfolio so vj saying decrease it some more uh yep i think that's what we're going to do so here's what we want out of our new trade that we're about to place we're trying to realign our portfolio biases with what we think the markets are likely to do how do we do this well here's a little guide if it's your first time in one of my webcasts here's a little general guide generally if we're looking to increase any of these three variables this is what we would do to increase our delta open bullish to increase our theta open short to increase our vega open along well this is what we want to do with delta so open a bullish trade this is what we want to do with theta so open a short bullish trade this is not what we want to do with vega we don't want to increase it we're looking to decrease it so to decrease using this general general guide we do the opposite of what's listed here so instead of opening long we open short so let me summarize that quickly this is a vote for a bullish position this is a vote for a short bullish position this is a second vote for a short bullish position short bullish position means just basically speaking well when we're bullish we can buy calls or variations on that theme that's bullish or we could sell puts or variations on that theme that's also bullish um interestingly i'm going to do something i think that's going to be a little bit eye-opening here for some who are watching for others it's not going to be a real revelation but uh we're going to uh nope never mind nope nope nope nope no i have my this happens sometimes when you're presenting live uh as i was going into this i thought i had a decision made with how i was gonna handle today's trade in re-reviewing market conditions i changed my mind that's okay and then sometimes when you change your mind on what you're going to do and you have a new idea that pops into your head you get the wrong idea that's what just happened there so i had the wrong idea and i'm backing away from it in any case let's go place a trade this is actually going to be a very a very familiar strategy there are a number of different ways that we might accomplish this but last week we did a bull put spread this week we're going to do a bull put spread again and i know that sometimes it can feel like oh i'm a broken record well you know for a stock trader when they see a stock market going up they might just buy more stocks with an options trader when they see a certain combination of factors it might lead them to repeating a familiar strategy so let's do that and there's this there's a stock out there that i i had a look at roy is saying could we do a synthetic covered call what would that be so synthetic covered call i'm not going to go too far into this but i'll just toss it out there if somebody wants to explore it more deeply roy starts with a synthetic stock position so synthetic stock position is created by buying a long call and selling a short put if you want to see that you can actually just go to youtube and type in cameron may synthetic and you'll find some videos that i've done on that on that subject before so we create a synthetic stock position and we sell culvert calls against that so could that work it could is that a bullish trade yes does it have positive time decay exposure yes um does it reduce the vix exposure well it's a net uh selling transaction well because of that shorter actually that might dial up the vix my apologies no no no no no no apps actually um yes roy that would uh that would reduce the vix so that could work all right let's see rg let's see rd says can we do an earnings trade i actually have been doing a lot of earnings trades recently and we've gotten toward the very tail end of earnings season so the pickens are kind of slim for for liquid options trades on earnings so i've kind of moved from that so let's go to our stock for the day we have nvidia look what's happened with nvidia just recently and it was bumping its head up against an apparent resistance area while the lows were rising though so we have roughly equal highs we have rising lows so this creates what we call a symmetrical triangle right for a technical trader that simply means that there's sort of a tug of war going on between buyers and sellers and it looks like the buyers are winning the sellers try to push the buyers back the buyers push them right back up to where they were the sellers try to push the buyers back and they're not as successful and then the buyers push push the sellers right back to where they were and then through that so we've broken through an apparent price ceiling and that for technic technical trader might signal bullishness and when i was looking at this before market open we were here and we're continuing that bullishness to to uh just up to this moment really however another thing that a technical trader might do with a triangle is they might measure the depth of that triangle as a general gauge for how high this move might take us i'm going to need a little bit more space to make this point here let me pull down this left column i don't know if you knew you could do this you could just click in this right column that left column right column and move it up and down to give yourself more space but i want to look at this depth right here okay from this first real low here up to that first real high it looks like it's about 25 bucks going from about 180 up to about 205 okay so if we get the break out here at about 180 a party made about 205 that may take us up to about what does that put us about 230 let me draw that in here 230 right there actually i'm going to take this out to this next expiration plan a trade that way all right so we want to bear that in mind because uh if we plan this trade actually how do i want to structure this what i've done here as i mentioned a little bit earlier i had a different trade in mind and i have the sometimes i'll make an executive decision here to um to change the approach that i was planning roy's saying very heavy volume on nvidia yeah you can see and and you can really see that playing out and it's not not surprising when we just had an earnings announcement but uh if we were planning a trade that depended on the stock maybe staying below a certain level that's one way that we might measure this if we had a trade like let's say a long call or we're planning to harvest a profit once we touch that as a target we could use that as a measuring device for today's trade though how about we just structure something that does well as long as we uh as we don't fall down too low all right well that's a that's a uh bull put a bull put fits that bill let's go to our trade tab i'm going to start to structure today's trade we're going to go out to the 15th of october we already have as i mentioned a bunch of things expiring on the 17th of september i'm going to stay with the traditional monthly expirations because they do tend to have better liquidity than the weeklies although the weekly is perfectly serviceable for some traders and let's structure our bull put spread now if we look at this how far down could we push this where was that that support was actually down around 205. so we could structure our trade down below 205 if we thought there's a strong risk that we're going to retrace all the way down there i'm actually going to maybe structure it even a little bit above that i'm going to take a little bit higher risk on this trade and we're going to go for a little bit higher reward scenario let's maybe sell a 210 put looks like it's trading between 630 and 640 and then we're going to buy how about if we buy that 205 put so we're going to be just above support so there may be a time even if we come down where we tease inside that vertical spread as long as we're above it though we're in good shape at expiration so it looks like the 210 trading around six and a quarter the 205 trading between 485 495 looks like maybe a dollar 35ish that might be made there on a five dollar wide spread so let's map out this trade there are going to be some that aren't very familiar with this strategy if you're new to options trading you may want to check out barbara armstrong's webcast it's called getting started with options uh peter says would you look for a potential pull back in price before entering this trade some traders might do that peter yeah with uh with our webcast obviously i don't have the luxury sometimes waiting i'm going to go ahead and place the trade but it's a good observation so this can be our example trade bull put spread and we want it to accomplish three things for us number one we want it to be bullish it is a bullish trade yeah it's called a bull put spread we're going to sell for our example the 210 this is going to be the 15th of october 210 put it looks like it's trading about six dollars and 35 cents right now and at the same time we're gonna buy the 15th of october 205 put and that looks like it's trading for about five dollars right on the nose this is going to generate a net credit for us theoretically of about 1.35

that gives us a maximum loss on this trade this is a five dollar wide spread minus that dollar 35 assumed credit leaves us with three dollars and 65 cents of risk that's pretty typical on a high on a high probability trade like this the reward is going to uh not about part maybe risk is going to exceed the reward potential in this trade but let's see if it accomplishes the three things that we want to do number one we wanted it to be bullish or to have positive delta so let's look at our strikes and do the quick math here if we buy an option we just use the greeks as displayed if we sell an option we reverse those okay so the 210 we're selling that put so instead of having a negative 30 delta impact on our portfolio it'd be positive 30. so that's a positive 30. that's good that's what we wanted our theta we reverse that that's a positive 11. that's what we wanted our vega is a negative 29. that's also

what we wanted so that is a check check check if we were to stop right there actually just selling the put would accomplish our objective but selling a put selling a naked or an uncovered put has significant risk so to minimize that risk it's not to eliminate the risk but to reduce it we're buying this other put that comes at a cost it comes at a cost that we're spending money it also comes at a greeks cost so for these greeks we just we just count them as displayed so it's going to have a negative delta of 25 we have a positive delta here of 30. so net positive still increasing our delta we have a negative theta of 10 but we have a positive 11 here that's a net increase that's what we wanted and finally our vega we have a positive 26 we wanted to decrease it well good because our other one is going to do that 29 negative vega so still even though we're not getting getting as large of an impact on our greeks we're still impacting the greeks in the direction intended right let's place our trade so a quick way that we can do this is come up here to spread single notice these two strikes they're two all these these two options we're trading are two strikes apart so i'm going to go down to deep and wide and choose one month two strikes vertical and that pairs up those strikes one with the next and then all i have to do is click on the bid price and it creates that seller it looks like this is trying to get us in at the mid price let's back this down let's say that we're willing to accept the buck 35 oh and it just jumped on us even we're still just to the mid price i might even have to back that down a little bit more ah it's still bouncing around let's hurry up and send this order off limit order still a risk that might not fill there is a transaction fee associated with this trade but let's send this order off and see if we get that quick fill yep we did all right so we're in that trade let's see if we've had the intended impact on our greeks so our when we started this webcast we had a delta of 72 it's now about 76 so we've increased that that's accomplished goal number one our theta was negative it is now less negative so that one trade has moved us in the intended direction and then finally our vega was a plus 308 we wanted to decrease that decrease our exposure there we're now 20 points lower we're at 289 so we've accomplished all three of our objectives and we've accomplished our time everybody we uh i really appreciate your attendance today it was a great discussion lots of chat very much appreciated let me give you one more quick invitation fill out that survey if you would it's very helpful to me it only it's only three quick multiple choice questions in the comments field but here was our agenda that we had for the day when we launched manage our existing positions review our greeks see if we're aligned with our market convictions and if not let's place a new trade that reorients our our portfolio biases toward what we think the market conditions are likely to be in the future okay so diego says i agree this trade works better if there is a pullback well um if we're to if we're to wait for a pullback we might be able to position those strikes lower interestingly if we did the same delta the profitability of the trade is likely to be about the same the probability if we get a subsequent bounce would be higher right there we go there's that's a that's an if that's dangling out there though right yeah okay everybody time for me to set you loose thank you for your time today lots of education still to come thanks pat for helping out in the chats as you go to enjoy the rest of our webcast remember that the risks are real we did use real examples in today's discussion it's not a recommendation or endorsement of those securities or those strategies i will see you maybe for tomorrow's webcast selecting an options portfolio selecting an option selecting an options trade or you can circle back again next week for another discussion of managing an options portfolio but hey whenever i see you again uh and until that time arrives i wish you the very best of luck happy investing bye [Music] you

2021-08-30 14:31

Other news