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SCALPING GAMMA - Options Trading Tutorial | Thinkorswim | How to Trade Options - YouTube
Channel: Jonathan Rose
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what's up everybody it's jonathan today
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we're going to talk about scalping gamma
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i'm going to walk you through an example
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in chem kem
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now in my opinion
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learning how to scalp gamma learning how
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to manage your position is probably the
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most important thing for any
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trader
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learning how to trade stock options
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it's an absolute necessity so let me
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walk you through an example of a trade
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that we shared june 11th today july 2nd
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so june 11th we shared an idea in chem
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k-e-m
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here's the date the trade that was
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shared was buying one july 24 strike
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call
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60 cents let's use the example of a one
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lot it's 60
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you can never lose more than 60 bucks
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we're also buying one july 21st
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strike put
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50 cents risk 50
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you can never lose more so if you do
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both sides of the trade if you do a one
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lot it's a hundred and ten dollars if
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you do a ten lot
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it's eleven hundred dollars but let's
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use the example of a one
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i highlighted the area of the trade but
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i also made a line on the 24 strike now
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i probably could do the same thing on
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the 21 strike but the stock never traded
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down there so don't worry about it okay
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buying one july 21 strike put
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allows you to be short at 21 if the
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market's under 21. the market's not
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under 21 so
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it doesn't matter they're worthless
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we have the option to be short we're
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going to choose not to be short because
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the price of the stock right now is
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25.67
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so let's just worry about the 24 strike
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call
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and i'm gonna show you how professional
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traders would manage this trade
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again we have a hundred and ten dollars
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of risk
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right now when we put the position on
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so here we go
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right away there's volatility
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but it's not really helping us very much
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because it's not moving away from our
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strike
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but all of a sudden we start to rally so
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now the 24 strikes are in the money now
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again the 21 strikes
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ignore them we're nowhere close
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the 24 strikes are in the money fine
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they're doing well
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what i suggest what i teach
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25
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we're up a dollar or we have a dollar of
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intrinsic value in those 24 strikes
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so what i'm always going to suggest that
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people do
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sell 30 shares of stock
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sell 30 shares of the underlying stock
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of kem
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if you sell them for 25 dollars at the
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price of 25
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your position
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you're still long one
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you never touched your options
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now you're short 30 shares of the
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underlying stock the reason we do this
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is because
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the being long one of the 24 strike
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calls it's the same thing as being long
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100 shares of chem once we're in the
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money so if i sell 30 right here
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or long one call short 30 shares of
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stock okay let's just trade whole
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numbers for this example so now we just
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hold we're not doing anything it looks
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like it's coming off we didn't get
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filled fine it still doesn't do anything
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doesn't do anything comes back down to
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24 we make a dollar on this trade let's
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cover
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sold 30
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let's buy 30 shares back so we make a
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dollar so we just made 30 bucks so if we
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go back to our original trade we've
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risked 110 dollars
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we've taken 30 off the table so now we
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have uh 80 of risk
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okay
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rallies again to 25. hey
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let's sell 30 shares again
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we're scalping gamma that's what we're
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doing
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wow it keeps on rallying to 26.
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okay great
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let's sell 30 shares again
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so we sell 30
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we sell 30. if it keeps going higher
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great problem to have right because
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we're long one call
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the equivalent of 100 shares we sold 30
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we sold 30. so we're still long in
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essence 40 shares of stock
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as the market turns and comes back off
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buy 60 back buy them all back
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okay so what do we do now we buy 60 back
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sell 30
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sell 30. so we make two dollars
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on 30 of them right that's 60 and we
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made 30 on these so we just made ninety
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dollars
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put that in our coffer
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we made 30 on this trade
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now we just made 90 we're up 120.
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so now we have zero risk on our trade
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we're actually up ten dollars we're up
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about 10 percent
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we still have about
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at this point 25 days to go until
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expiration
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we're up 10 on this trade we can never
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lose that money we're up money on the
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trade
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comes off it rallies again oh it came
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down we really couldn't do anything here
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because remember we're along with 21s so
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forget about that
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rallies back up 25s sell 30.
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keeps on rallying
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do you know what to do
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sell 30
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comes back off
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put a bid in there to buy 30 back
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what you'll notice
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is we are never touching our options
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we are never giving up the most powerful
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thing that we own which is our
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optionality
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we're up good money on this trade
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because we're up 10 bucks but of course
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as we're rallying here we just locked in
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another
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30 on the options because we're long the
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24 strike
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now it rallies to 26 you make two
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dollars on the options here
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if it comes back off we can buy the
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stock and if it keeps running
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stay long the call
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and get short 30 shares 30 shares maybe
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40 shares
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at expiration your long one call
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and you're short 100 shares of stock you
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are flat you are up money
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this folks
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is how professionals manage an options
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trade
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why do we manage an options trade like
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this well when you're long options
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what's your risk
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your risk is premium coming out of your
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options theta decaying what's the
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opposite of theta
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glad you asked it's gamma
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why do we scalp gamma
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we scalp gamma to make back that theta
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okay
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we need to know this if you're risking
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money in the options market and you
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haven't learned this yet
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you're learning the wrong thing
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this is the stuff that we need you to
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learn okay hey you have any questions
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support
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active day trader you like this video
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give it a thumbs up subscribe share it
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really helps thanks a lot guys my name
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is jonathan rose owner of active day
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trader
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