Original trade shared with Members Jan 3. 

•  $XPOF:  Consider Buying the Feb $17.5 puts for $.80 (hold until expiration).

Why do we say “hold until expiration”?

In the $XPOF example, if a trader buys 10 lots of the $17.5 puts for $.80, the cost would be $800 (not including commissions). The trader can never lose more they are willing to put at risk.  

It is prudent for traders to make decisions about risk before entering a trade, not while they are in the trade.

Buying options makes this easy because traders know the worst-case scenario from the moment they enter an options position until those options expire.

The chart above shows the weekly implied volatility ranges for $XPOF.  $XPOF has only closed within it’s weekly volatility 26% of the time.  The market is not very good at pricing $XPOF, most likely because it’s only been trading publicly 

Above, when Cory says “scalping gamma” is so fun, what he’s referring to is buying stock of $XPOF as the stock trades lower.

The reason traders would do this is that buying the underlying stock allows Cory to lock in profit from the long 17.5 puts while also taking off risk.

Buying stock allows Cory to still keep his “optionality” on those $17.5 puts.

EXAMPLE

IF Cory is long 10 of the $17.5 puts, and he purchases 1000 shares of the underlying $XPOF for $16.00.  At expiration, the long 10 puts become short 1000 shares at $17.5. The account is already long 1000 shares at $16.00, those longs and shorts will offset to a net $1.50 winner 10x = $1500

IF Cory is long 10 of the $17.5 puts and sells his puts for a $1.50 profit, he also makes $1500 but he would lose his “optionality”

The Feb puts still have 35 days until expiration.  IF $XPOF gets bought out and trades $36.  The trader (first example) who has “optionality” is long 1000 shares from $16.  With the stock trading at $36 that long position is worth $20,000, your $17.5 puts are now worthless but were smart in keeping your “optionality”.

The poor fella who closed out his options position to make $1500 has lots of FOMO because he covered his entire position and lost his “optionality.”