{"id":11936,"date":"2011-05-31T12:16:51","date_gmt":"2011-05-31T16:16:51","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=11936"},"modified":"2023-06-08T15:15:47","modified_gmt":"2023-06-08T19:15:47","slug":"legging-out-of-a-winning-options-spread","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/legging-out-of-a-winning-options-spread","title":{"rendered":"Maximizing Profits: Legging Out of a Winning Options Spread"},"content":{"rendered":"

Nothing is more frustrating to an options spread trader than working a trade for 30-60 days, using all of your skills and knowledge to initiate, adjust and improvise to position the trade for a nice win and then, on the day you have decided to exit and pocket that\u00a0\u00a0 profit,\u00a0 you run into execution problems. There is nothing quite\u00a0 like watching the\u00a0 substantial\u00a0 profit\u00a0 that you thought you were going to lock in,\u00a0 turn into a tiny profit or even a loss on the day you planned to exit, causing all of the work of your last 30-60 days to\u00a0 go down the drain.<\/p>\n

And there is no options spread trader out there who has not experienced this\u00a0 killer situation at least once.<\/p>\n

There are three basic principles that I use to exit profitable trades and over time they have served me well:<\/p>\n

1. If you are up a solid amount on a spread trade and the market is quiet, you might want to take a hard look at exiting that day.\u00a0 On quiet days, the possibility of a strong adverse move in the midst of executing your exit\u00a0 are much lower on quiet boring days in the market.<\/p>\n

2. In the midst of exiting, unless you have a strong directional bias that day, make sure to keep your deltas close to neutral in the exit process.<\/p>\n

3. Closing shorts positions closest\u00a0 to the money as the first step in exiting the trade,\u00a0 is often a great way to cut the delta\/gamma risk of the exit process.<\/p>\n

This morning I exited my June SPX butterfly trade with a nice gain (yes in options trading you can close a\u00a0 June trade\u00a0 in May…it sounds weird but it happens all the time) . The market was rallying and according to my approach to trading this particular butterfly, it was time to take my profits.<\/p>\n

While this morning’s rally was fairly strong at first, it did back off by one hour\u00a0 after the opening bell\u00a0 (which is normally the earliest that\u00a0 I will begin\u00a0 my exit of\u00a0 a trade) leaving a more mellow market environment within which to\u00a0 engineer my exit. That’s really important.<\/p>\n

My\u00a0 first move involved selling off two thirds of a put side\u00a0 \u00a0 butterfly that was really hurting my deltas. This cut my deltas down substantially\u00a0 preventing a renewed rally from taking a bite out of the profits I was trying to\u00a0 preserve.<\/p>\n

Next,\u00a0 I sold off 75% of my call side butterfly that constituted the majority of the capital left in the trade once I sold off most of the\u00a0 put side butterfly.\u00a0 While that would appear to put me back into the negative delta situation that I had just extricated myself from earlier (which it did to some extent),\u00a0 \u00a0 the remaining capital I had in the trade was so small that whether I was negative or positive deltas was of little consequence–in other words most of the profit was locked down at this point.<\/p>\n

What was left after the first two transactions was a very small, perfectly symmetrical\u00a0 double butterfly that I exited by use of\u00a0 buying a condor to neutralize the deltas of the trade until expiration day.<\/p>\n

What’s important about this story is not whether I made or lost money on the trade. What is important is that over time, I developed a series of\u00a0 principles that guided my successful exit of profitable trades and I followed them today. They might have worked or failed–Mr. Market will always be the final arbiter of that outcome. But by developing principles that work for me and then following those principles, I give myself the best chance at a successful outcome. This is what we teach at SMB–finding the trades that work for you and having the disciplines to follow your time-tested approaches.<\/p>\n

Options Tribe meeting today at 5pm EST. Hope to see you there. We’ll be going over how to scan for profitable trading opportunities. Register Here:\u00a0\u00a0 https:\/\/www3.gotomeeting.com\/register\/767892214<\/p>\n

Seth Freudberg<\/p>\n

Director,\u00a0 SMB Options Training Program<\/p>\n

The SMB Options Training Program<\/a> is a program designed for novice and intermediate level options traders who are seeking an intensive training process to learn how to trade options spreads for monthly income. For more information on this program contact Seth Freudberg: sfreudberg@smbcap.com<\/a>.<\/em><\/p>\n

Risk Disclaimer<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

Nothing is more frustrating to an options spread trader than working a trade for 30-60 days, using all of your skills and knowledge to initiate, adjust and improvise to position the trade for a nice win and then, on the day you have decided to exit and pocket that\u00a0\u00a0 profit,\u00a0 you run into execution problems. There is nothing quite\u00a0 like … Read More<\/a><\/p>\n","protected":false},"author":741,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,1402,1584,1373,15],"tags":[4694,1646,1598,1761],"class_list":["post-11936","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-options-education","category-seth-freudbergs-blogs","category-trading-lesson","category-trading_theory","tag-options-income-strategies","tag-options-spreads","tag-options-strategies","tag-options-training-program","no-post-thumbnail"],"yoast_head":"\nLegging Out of Winning Options Spread | SMB Training<\/title>\n<meta name=\"description\" content=\"Learn how to leg out of a winning options spread and maximize your profits with SMB Training.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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