The WalMart position shrinks
I thought it best to update the WalMart trade one more time this week, as things changed a little bit today.
We were able to close our short 76 weekly puts (expiring tomorrow) for 5 cents yesterday. Our broker, ThinkOrSwim, has a special feature that you may not know about, but it’s something you should nearly always take advantage of. They encourage you to close any open short option position when it decays to 5 cents by giving you a commission free transaction. That’s right. You can close any quantity of short options for 5 cents or less – for free. There is a very important concept behind this – let me give you an example. Our 76 puts were sold on March 14 for $1.80. Yesterday, they were priced under 10 cents so I placed an order to buy them at 5 cents commission free, and it was filled later in the day. We had made $1.75 per contract and the most we could make at the day’s price level was another 5 cents. Why continue to leave that risk/reward profile open? We could make 5 cents, but lose much, much more than that. Yes, it’s unlikely that Walmart will trade at $70 or less before the end of the week, but as events like the flash crash make abundantly clear, it IS possible. So, take the $1.75 profit now and move on. Another way to think about this: Every day you leave a position open, it is like you opened it new on that day. Would we have sold a WalMart weekly 76 put (expiring tomorrow) for 5 cents today? No, that is a ridiculous trade when you consider the risk reward — maybe make 5 cents or maybe lose $5, or $10, or more? It doesn’t make any sense.
Our position has now become one of slight negative Delta with our Theta of around $20. Options positions are dynamic, and constantly changing. This requires that your positions be properly managed, and that is the most important concept that is taught here. With a slight negative Delta, we are free to sell some new puts, which we will. Since inception, this trade string is now down about $315. Stay tuned.
Here at DeepPocketOptions we have developed a number of rules that greatly increase our chances of making money. One of our rules is this: Anytime you can close a profitable position for 5 cents (commission free) — Do it! Sure, rules are made to be broken, but this one is rarely broken. (We do break our rules, though. Even this one. But that is a subject for another time.)
Stay optioned, my friend!