exit1

Disclaimer – This example was selected for the demonstration provided below. These trade setups happen all the time and on every chart but your results may vary. You should always do your own due diligence before making investment decisions and/or consult a registered financial advisor. This page is not a recommendation for you to buy or sell any securities or attempt the information provided. It is for education and entertainment purposes only.


Exiting an Options Trade

 

There are 3 ways to exit an options trade…

– Close the position

– Expire worthless

– Exercise or assignment

 

The most common form of exit is to close the position in the options market and for this example, I’ll be doing just that. I’ll look to capture a profit by selling the option I purchased to someone else.

 

Let’s take a look at my trade for Delta (DAL) a couple days later.

 

Click to Enlarge.

Delta Trade
Feb. 18, 2016

 

Great! In just two days I’ve made $71.50 in profit. At this point, my assumption on direction was correct and I’ve collected some nice profits for my effort.

 

What should I do next?

 

Well to answer this I’ll need to reevaluate the DAL chart, VIX chart, and the S&P 500 chart just like I did on the trade identification page. For your sanity and my own, I won’t show all three but the chart for Delta on Feb. 18th, 2016 is below.

 

Click to Enlarge.

Delta Chart
Feb. 18, 2016

 

From the chart it appears we’re right in line with a resistance level so I could either close the trade here or monitor the position to see what price does near that first resistance line.

 

Bollinger %B is pushing into overbought territory and no signal from the PPS indicator or the moving averages that price will reverse, yet.

 

For now, I’ll wait and watch the price…

 

Fast forward through the weekend and on Monday take a look.

 

Click to enlarge.

Delta Chart
Feb. 22, 2016

 

The stock didn’t do much on the 18th, it stayed near the open all day so closing before the bell would have been a logical decision. I chose to wait and see what happened the next day and was rewarded as more bulls entered the action. Once the first resistance line was broken I felt strongly we would see at least a touch of the second line and that’s exactly what happened here.

 

At this point I can’t see any reason to keep the position open. Going back to an earlier discussion, leaving the position open here would be gambling, and again, I’m not a gambler. At least not a good one. 😉

 

Let’s take a look at my profits before executing the closing order.

 

Click to Enlarge.

Delta Trade
Feb. 22, 2016

 

Not to bad… I’ve profited $117 in just 7 calendar days and 5 trading days. No, I can’t quit my day job with this income but do this a few times a month, if so inclined, and the profits can stack up nicely.

 

All that needs to be done now is to close the order. Simply, use the same steps for entering the order, only in reverse. If a position was bought to open, simply sell it to close. TD Ameritrade’s ThinkorSwim platform makes this super simple. Right click the position > Create closing order. When the dialogue order entry/exit box appears, double check the information for accuracy and confirm and send.

 

That’s it! I’ve closed the trade and accepted my profits.

 

Have a look.

 

Click to Enlarge.

Exit Steps
Feb. 22, 2016
Exit Trade
Feb. 22, 2016

 

That’s it…

 

On the next and final page of this introductory course on options trading I’ll offer some final thoughts and send you merrily on your way!


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Placing the Trade


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Course Conclusion