The First 2 Trades Of June’s Portfolio


Hey everyone. This is Kirk here again from Option Alpha
and welcome back to the video update. Tonight, we’re going to go through all the
trades that we made on Friday, April 26th. We had a pretty active day actually, a couple
of closing trades, a couple of new opening trades and trying to squeeze some things into
the portfolio as we finish up and round out the week. First up is a couple of closing trades that
we did have today which all good things we were able to take off for profits. We closed mostly the inside strikes of a couple
of our iron butterflies and iron condor positions. The EEM trade was our first one off. This is closing one set of our iron butterflies
as noted here in the trade comments in May. This is where we just closed the inside strikes. We’re going to leave those outside strikes
on to basically serve as little lottery tickets and pretty much expire worthless or the intention
is that they expire worthless, but if they don’t and we’ve got 22 days left to go,
they could serve as really, really good hedges for any potential black swan event that might
come. In our case, EEM, we closed again, the 44
strike centered iron butterfly. If we look at EEM, we had a little bit of
a fluctuation since we entered the original position all the way back here, had a little
bit of a dip that went against us, then a rally, then it went too far and then it came
back down around the 44 strikes, so ultimately ended up working out well. Same general thing with SMH, only this one
took about two days. This was actually a pretty quick move and
to be honest with you guys, we got totally lucky in this move in the sense that I think
we had the right direction. I think we obviously have the right trade
on and picking a little bit of a bearish trade here in SMH, but we got totally lucky that
we actually got a pretty good move down in SMH just literally in the last two days since
we entered the position. I would say thought that sometimes this is
where kind of using some of these technicals might come into play where trades like this
that we could get a little bit directional on. And what we saw with SMH was we saw really,
really overextended readings on SMH the day that we entered the position. Two days later, we had a little bit of a pullback
and as I mentioned, when we entered the position, that’s all we needed. We just needed a little bit of a pullback,
a little bit of a check against this mega rally that SMH is going through and that would’ve
given us an opportunity to take money off the table and it did. Two days later, we were beyond our 50% profit
target. We closed this thing for a $40 debit and took
$165 quickly off the table. A good little trade. Again, sometimes it’s better to be lucky
I guess in these cases to have it come in fast against your position. We did also add a new covered call to our
existing 100 shares of GLD stock. Now, again, as I mentioned in the trade comments,
this is only for those of you who were assigned on GLD. If you go back many, many weeks now from the
original assignment that we had, we had an iron butterfly that consisted of three contracts. Well, we only got assigned on one of those
contracts. The other two contracts, we did not get assigned
on. In our case for this position, what ultimately
ended up happening is we decided to keep the 100 shares of stock that we were long. Now, the next step now that we decided we
wanted to hold these 100 shares of GLD stock is to start the process of selling covered
calls against it and start to reduce our cost basis. It’s a very systematic approach. We’re selling around the 25-ish Delta about
60 days out from expiration and we’re selling the 125 strike calls for a $.66 premium. Ideally, we’d love the stock to rally up
to around the 125-ish level which is a pretty decent rally from here, but we’re getting
into this trade with 60 days to go, so 60 days is basically where my cursor is. That’s a pretty far time for GLD to make
a move. And we wanted to wait to enter this covered
call position all week until we saw a little bit of a bump up. Again, like what we saw in SMH just in the
opposite direction, we were starting to see that GLD and gold in general was flashing
a couple of these technical buy signals, so for us, we want to just wait for a little
bit of a bump up and see if we could get much better pricing and a little bit further out
on strikes to do GLD later in the week and that’s what ended up happening. It was a good little wait, good patient trade
just to time it just a little bit better. We also did get out of our XOP, one of our
iron condors. Yes, this was an iron condor that we closed. It was a very tight, narrow iron condor, the
31 calls and the 30 puts. We closed that for a 152 debit, $183 profit,
very similar to the other ones that we talked about earlier. Alright, so two new positions… I’m sorry. Actually, I forgot we closed TLT as well. We actually closed our only set of TLT butterflies
for… I’m sorry. No, our one set of TLT butterflies for May. We have another set that’s working I believe
at around the 123 strike. This one, we closed in full though because
it was a quick order that got filled and there was some pretty decent premium on the outside
strikes, at least enough to cover the risk and the commissions that were in the trade,
so we ended up closing this whole iron butterfly here for $112. Again, like I said, I think what we’re left
with on TLT is the 123 I believe iron butterfly. Yeah, the 123 iron butterfly which is making
money. It’s making money. We sold it at 216, 217 and now, it’s at
183. It’s just not there yet. It’s just not in our profit target just
yet. Alright, so two new positions that we got
into today, these are core ETF tickers for us. Again, if you guys remember, you can go back
through the strategy call and live Q&A call, we talked about the core strategies and tickers
that we’ve been trading. We’ve been trading all of them pretty much
the last couple of months. And so, the process is we start to really
add new trades to the portfolio. For June, we start with these core tickers,
so we work down this list of roughly 10 or so ticker symbols, we add a position to each
and then we come back around later on after a week or two and then repeat the same list
and start to ladder into those second and third trades in these tickers. We’re going to get into these and try to
get into them, basically highest implied volatility to lowest and start kind of working them in
that way. That’s a general rule of thumb. It doesn’t mean that we will absolutely
take the highest and then the second highest and then skip over one of them or etcetera. We want to get into all of these tickers,
but we’ll do it slowly over time. As they start to move and as they start to
kind of see some rebounds and rallies, then that will give us an opportunity to add. But again, the goal is as we’re building
out June because this is the first time that we’re building out June as we go through
this period, add those core tickers, go neutral on a lot of those and then come back around
after a week or two and add the second level or laddered entries in those tickers potentially
at different strike prices if the markets have moved. First one up here is XOP. XOP has some pretty decent implied volatility. We sold the at the moneys at 31 and then again,
bought really, really cheap protection out at 25 and 37 on the call side respectively. For us, this is our first entry here. XOP has had a little bit of a dip and down
move, slight bump up in implied volatility which is okay and so, we just want to get
into this core ticker and start selling some premium. Same thing for FXI. FXI, we got into as well today, sold the 45,
44 iron condor. Yes, this is an iron condor, a very tight
iron condor just like what we saw with the XOP trade that we got out of earlier and this
is because the stock was trading pretty much effectively in the middle of this short strike
range when we got into this. There’s no point in choosing a direction. We just try to be as neutral as possible as
we’re building out this first set. And so, for us, FXI, a good trade even though
it’s got low implied volatility. Again, the reason that we’re adding this
is because it’s one of our uncorrelated tickers that we want to trade. The benefit that we get in diversity of our
positions is more than covered by the fact that implied volatility is low. And even though implied volatility is low,
again, we can still generate a positive expected return in low implied volatility markets. We just want to keep position sizing in check. As always, low implied volatility markets
that we have now, you keep the position sizing small, take some small premiums and stay active
with your trading. This is the first round of these. We’ll start trading some of the other tickers
this week as we continue to move forward and start building out the June portfolio and
then we’ll come back around potentially the week after and start adding the second
level of laddered entries. Hopefully this helps out. As always, if you have any questions, let
me know and until next time, happy trading.

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