Trading Options In EWY (South Korea ETF)


Hey everyone, Kirk here again at optinalpha.com
and in this video update, I want to go through all the trades we made on Tuesday, October
10th. It’s a little bit of a weird day I would
say because most things I think were turning back around which was good, except for a few
of the emerging market stocks in general. Mainly like EFA, EWW, etcetera had really,
really big days. EWZ… You know, just really, really big days in
some of these stocks. I think it was mainly because most of the
dollar stuff was turning around. I don’t know if people are starting to now
plow into foreign currencies or if it’s just currency exchanges driving this. But you saw a lot of these major currencies
move up against the dollar. The dollar moved down, the yen was up, although
it definitely pulled back from the highs, the Euro was up, etcetera. A lot of the emerging markets did really well,
so did gold and silver, had pretty good days overall, although they did pull back off their
highs. To start the day though, we did get into some
new positions. The first one that we got into is EWY. As I mentioned in the trade comments because
I did get some people who emailed and said, “Kirk, this one was not on the watch list.” I said, “Yes, it is going off the watch
list.” Really, we haven’t traded EWY in a long
time. It’s just something that just hasn’t been
high on our radar. But in looking at just generally EWY, it came
up as something I was just typing in, I guess going back to some of the other stuff and
just looking for things to trade and has pretty high implied volatility which has been great. And then when you dig down a little bit further,
you can see that it actually has pretty decent liquidity. Lots of different strikes have… It’s not insane liquidity, but lots of different
strikes have pretty decent liquidity. This is probably no different than silver
or GDX or something like that. I mean, it’s enough to obviously get the job
done and do a small position. What we wanted to do is because there’s
high implied volatility trade, something more aggressive. We didn’t want to go totally naked on this
either because we’re not really familiar with it, we haven’t traded it in a while. And so, what we want to do is we want to trade
something like… I don’t know why it does that every time
I do that. But we want to trade something like a very
tight iron butterfly in EWY. I’m sorry, wide iron butterfly in EWY. We did the sell at 71s on each side and then
on the call side, we went out $7 and then on the put side, we went out about $7 as well,
trying to really stretch that premium as much as we could on either side to give us a pretty
decent and balanced position overall which I think worked out pretty well for us. That gave us a pretty big credit of almost
$3. This might be the first of maybe two laddered
positions that we might do in EWY, but we want to definitely start this thing off pretty
small. The other one that we got into today is XRT. This is another position in XRT for us. We’re just continuing to trade these same
things. On October, we did a set of strangles which
we’ve adjusted and done everything in there. For November, we just want to do the iron
butterfly only because the call options and the put options far out of the money are just
really cheap. You don’t have to go that far out to buy
pretty cheap protection, so why not sell the at the money strikes at 41, collect a higher
premium which effectively gets you out as far as a strangle would? We would sell a strangle maybe $2 out on either
end to get that 15 Delta range. And so, if we sold this strangle out on either
end $1 or $2 to get that 15 Delta, we’d be collecting $40 in premium. Now, of course, I don’t know if it’s worth
it to do that versus just doing in this case with Novembers, to do the iron butterfly. You do sell the at the money strikes, but
you collect a bigger premium and then those out of the money strikes are just not worth
too much. I mean, they’re just not worth a lot to
be traded. It’s easy to buy protection for those. It doesn’t work all the time, but in this
case I think for November, we’ll go with the iron butterflies and start laddering into
more of those. That’s why we ended up doing that, just
a regular standard entry here. The only position that we did adjust today
was obviously EFA. EFA had a pretty big move higher, so we moved
up our 67 put options that were now starting to get a little bit further out of the money
to 69. Now that we’re getting closer to expiration
obviously, we’re now basically heading into the last couple of days of this week and then
expiration next week. We do want to start being a little bit more
aggressive with our adjustments. You can notice with EFA that we went ahead
and moved up basically our furthest out of the money options at 67 which weren’t worth
that much and moved them up to 69. I would like to move them up and gave ourselves
a little bit more room, meaning move it up to like 68 or so, but you can see those 68
options are not worth a lot. If we sold 68, we’d collect $10 and we’d
have to buy back the 67s for basically $5. Net before commissions, we’d only collect
$5. It’s really not worth it to move it up to
the 68s. In this case, you have to move up to the 69s
and go a little bit inverted. Now, overall, our EFA position is still okay. This is post adjustment and it doesn’t include
the premiums that we took in originally. We still need EFA to move down and pair back
a little bit, but overall, it’s not too bad. We’re still in the wheelhouse of where we
need to be. If by the end of the week, we see that EFA
continues to move higher, we’ll take our furthest out of the money strikes now which
are the 68s and move those up to 69 as well. We’ll continue to roll those up. Now, the good news is that we’ve got really
cheap protection that we added a long time ago here at 70 and 71, so if this thing really
continues to move higher, we absolutely have much less risk on the call side of our position
than on the put side, but we just need to keep rolling these strikes up and start collecting
more premium. We also haven’t added any positions for
EFA in November, so that’s something that we’re going to try to do as well. We tried to put in an order today. It just didn’t get filled on that. But I think adding a position here in November
will also offset this and re-center the trade a little bit higher as EFA moves. Generally, that’s what’s going on. Like I said, a lot of things moved well in
our direction today. Silver moved really well. Bonds, SMH, all these things started to come
back in a little bit which is good. And so, yeah, we’ll just take it a day at
a time as we get closer to October expiration. As always, if you guys have any comments or
questions, please let me know. Until next time, happy trading!

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