In this article, I will show you how to trade options on Interactive Broker’s Trader Workstation (TWS).
Right now, I have more than $1,800 in unrealized profits, and I decided to take some of these profits and close some trades.
I will show you exactly…
- Why I’m taking profits
- How I’m doing it
- What a trading platform looks like and how you actually place trades
Let’s get started.
In the following example, I am using one of my smaller accounts that I specifically set up to take advantage of the Stock Market Crash 2020.
In this account, I am mainly trading options.
I started this account 2 weeks ago with $25,380 in it, and right the account balance is $31,000. 🙂
So let’s talk about the different elements of a trading platform first:
Interactive Brokers Options Trading Using Trader Workstation
It doesn’t really matter what trading platform you use:
You can use Interactive Brokers — which is the trading platform that I use — TD Ameritrade, Fidelity, eTrade, Robinhood….
… all of these platforms will have the same four elements that I’m going to show you right now.
- Every platform has a place to enter orders. In my platform, it’s in the upper left. And that’s where we will enter the closing order in just a moment.
- The next element is a window with some basic information about the stock or the option that you want to trade. Here in Interactive Brokers, it’s a basic candlestick chart. It’s VERY basic, but it doesn’t matter. As you know, I like to use TradingView and PowerX Optimizer — my own software — to find the best stocks and options to trade
- In the lower right, you’ll see a window with all “open orders.” Right now, there are none. But in a few moments, after I place an order, you will see the open order there.
- Finally, in the upper right, you see a window with all my open positions.
As you can see, there’s a few PUT options had I sold:
- Put Options on Boeing (BA)
- Put Options on Tesla (TSLA)
- Put Options on Disney (DIS)
- Put Options on MGM (MGM) and
- Pu Options on Delta Airlines (DAL)
All of these positions are making me money right now.
And today, I want to close 3 of these 5 positions.
Closing The Disney (DIS) Put Option
When selling put options, I’m betting that the stock will stay above a certain price.
In this example, I’m betting that Disney will stay above $80 by April 9th.
And here’s why I want to close the trade today:
I sold the Disney Put Options for $0.90. And right now, they are worth only $0.06.
I sold 5 put options, and since each put is worth $6 right now, the value of the 5 puts is $30.
So if I hold them for another 4 days until they expire, I would make an additional $30.
Right now, I’ve already made $420. If I wait a few more days, I would make another $30.
For me, it’s not worth it. Because if something happens over the next few days and Disney crashes and burns, I might get in trouble.
If I can take $420 off the table and reduce my risk in this trade to zero, why would I go for the remaining $30 here?
To me, that doesn’t make sense. And that’s why I want to close the trade..
So I sold 5 put options a few days ago. And now I need to BUY them back.
Right now, the “bid/ask” for this option is $0.05 — $0.06.
This means that right now there are some traders who want to BUY this option for $0.05.
And there are some traders who are willing to SELL these options for $0.06.
Since we only have a few minutes left in the trading session, I am going to “hit the ask” and let one of the sellers know that I’m ready to take him up on his bid and buy the put option for $0.06.
Let me just see if I can hit up one of these guys who say, “All right, I want to sell at $0.06,” and say, “I’m going to take you up on your offer.”
As soon as click on SUBMIT, this order appears in the “OPEN ORDERS” window in the lower right:
Alright, let’s do some more options trading on Interactive Brokers TWS:
Closing The Delta Airlines (DAL) Put Option
Let’s looks at Delta Airlines next.
I sold a Delta Airlines Put option, and I’m betting that the stock stays above $15 by April 17th.
But let’s take a look at the chart here of Delta Airlines.
Thus far it has been doing good. We’re still trading at $22. So I have plenty of room to go down to $15.
However, Delta Airlines is reporting earnings in just 2 days from now. I don’t want to get caught in the earnings.
Who knows what earnings they are reporting?
The stock might drop, and I want to avoid that. Thus far, I’m up $314 on this trade. So might as well take some profits here.
And today is an “up day”, i.e. markets are up almost 6%. “Up days” are great days to take profits.
On “down days”, when the market is going down, I like to look for new trading opportunities when selling puts. Because premiums are higher on down days, and that’s what we want when selling options.
But let’s close this Delta trade first:
My position is “minus 10”, which means that I sold 10 puts.
Therefore, I need to buy back 10 of these Delta puts.
Let’s take a look at the “bid/ask” now: There are some traders willing to SELL for $0.43. And there are traders willing to BUY at $0.42.
I’m going to “hit the ask” and place the order.
We still have 14 minutes left in the trading session.
Let’s take some more profits.
Closing The MGM Resorts (MGM) Put Option
Let me explain to you why I want to close out my MGM trade.
Again, I sold a PUT Option, so I’m betting that MGM will stay above $3 by June 19th.
Let’s take a look at the chart:
My bet is that MGM will stay above $3.
And yes: This seems to be an easy bet to win, since they are trading at $14.55 right now.
But I’m a short term trader. I do not want to be in this trade for another 2.5 months.
If I held this trade another 2.5 months, I can make an additional $21 per contract. And I’m trading 20 contracts, i.e. I can make an additional $420.
But I’m already up $1,100, and that’s after only 2 weeks!
So if I can make $1,100 in two weeks… should wait another 10 weeks to make the remaining $400? That doesn’t make sense to me.
Let’s get out of the trade, free up some of the buying power and then we can look for new opportunities when the markets are going down again.
So we do the same as we did previously:
We BUY back 20 contracts.
And the “bid/ask” is $0.19 / $0.22, i.e. there are traders who are willing to buy at $0.19, and there are traders who are willing to sell for $0.22.
When the bid/ask is larger like it is here, we want to “work the order”.
I’m going to bid $0.20, and here’s what will happen:
As soon as I submit the order, the bid will jump from $0.19 to $0.20. Now I’m the buyer with the highest bid. So let’s submit the order.
I’m the highest bidder now, bidding $0.20.
But nobody is taking me up on my bid (yet).
So I am going to raise my bid to $0.21.
There are a bunch of sellers who would take $0.22. So if I would bid $0.22, I’m “hitting the ask” and I would get filled right away.
But here’s what happened after I stepped out of the crowd of buyers and started bidding $0.20 instead of $0.19 like everybody else:
They sellers noticed me and reduced their ask from $0.22 to $0.21! They are trying to meet me in the middle.
I moved the bid up from $0.19 to $0.20. And the sellers are saying, “Hey, we don’t want to have $0.22 anymore. How about $0.21?”
That sounds good to me! I’m going to take them up on the offer.
I’m changing my bid here to $0.21.
After placing these 3 trades, I realized $1,800 in profits.
And that’s how you do options trading on Interactive Brokers.
This was fun 🙂
View more information: https://www.fxstreet.com/education/interactive-brokers-options-trading-closing-options-trades-for-1-800-in-profits-202004131706