Updating the WalMart trade – now almost profitable.

When we last left our WalMart trade, it was down $520 (last week). Yesterday, we closed down $155. We collected Theta over the weekend and then the position improved by $300 today. Our Delta is near zero and Theta is about $32.50 a day. Remember, we were sitting on a -$2500 position on February 10, when Walmart closed at $73.76. Today, the close was $77.38. With our program of option selling around the core position, sometimes selling calls and sometimes puts, we have the same gain we could have made by owning 700 shares. That was done without actually purchasing the shares. We don’t own any shares right now, we are only short options, some puts and some calls, totaling less than 50 DIA Weighted Deltas.

We created a position that has been paying us around $25-$30 a day for a long time, and that will continue indefinitely, as long as we manage it properly. If instead we owned those 700 shares, we would not be making money every day, plus we would have had to find the wisdom to purchase them on the exact lowest day. We then would have had to have the wisdom to hold on to them. We would have had to make a series of correct choices, all at the right time. This is truly impossible.

If we have a completely different goal – we want to create a risk-managed option position that throws off regular income  – we can make consistent profits without being the future-seer we described above. Trading options is a business where you try not to be a stock picker or a market timer. You manage positions. You track your projected income from each position and compare that to actual income, then adjust accordingly. Option positions are infinitely adjustable. You combine any number of puts, calls, long stock or short stock positions to create your risk profile. You try to have each position (think of it as inventory) throw off as much cash as possible. You try to avoid picking a direction of movement and strive to stay market neutral. A position can “get long” or “get short” as time passes and prices move around. Options are dynamic and constantly changing. This movement creates opportunities. If I have a position that is market neutral today (Delta of zero) – by tomorrow it might get long and have a Delta of 100. I can then sell a call and take it back to Delta neutral while increasing my income. More cash,less risk.

Stay Optioned, My Friend!



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