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Trading System for Short Efficient ETFs – Part 6 – Trade Exits

24 May 2018,

Dear readers and traders, in this part of the option educational series, I would like to continue with speaking about the ineffective ETFs, and in the second part of my article, I would then summarize the development of gas trading on our trading account. That means from theory right away to practice, all within one article.


Exits from positions

We have not yet spoken much about practically the most fundamental part and that is the exit from positions. Classics say that it is possible to enter in virtually any position, the art of trading lies in the exits.

In the case of inefficient ETFs and option trading there are basically several exit options. We have already described their basic overview here, so let’s just introduce those methods that we will now use in trading on the ETFs with natural gas.


It contains:

  • Close on the basis of the remaining bonus premium – it is very common, and I think even a very reasonable approach. After all, a number of brokers motivates their clients by the fact that, example, if the remaining premium is 0.05 (ie $ 5 per contract) for example, no commission is charged for such order. It really does not make sense for a few dollars of the remaining option premium to risk that the market in the last days or hours before the expiration will “explode” and a few cents option will eventually become a few dollar option.

Under the natural gas trading system, we use a close at a fixed rate of 0.20. We simply set a pending order with a given price as a GTC in the trading platform, and if it is filled, it’s just fine.

However, please do not take the fixed amount of the purchase price as a dogma, the conditions can be adjusted by everyone. After all, as I have already written – the “profit target” can be 80% – 90% of the premium received, so if I get a premium of 1.00 at the opening of the trade, then the closing order will be 0.2. 0.1.


  •  Expiration of the option – if the above conditions are not met (ie, it is not possible to buy back the option for given price eg 0,20) and the price is still around the strike, it is possible to consider whether not to leave the option to expire (of course only if the price is under the strike of the sold option).
  • If that does not happen, you will need to roll over the option and possibly also the strike. This was, of course, our case last week, when exactly this situation took place during the expiration Friday.
  • Alternatively, if the price would go over the strike of the sold call option, we can also consider assigning the asset (a short position of given ETF will appear on our account). However, the costs for shorting need to be taken into account, so we will rather consider this approach if the price of the ETF is significantly overbought and reversed and especially fast Pullback is very likely to happen.


Let’s now comment the last week’s trading on our trading account, which is dedicated purely to ETF traded on gas.


Week 3 – Gas trading

This week there were two trades. On Friday 18.5. expired the largest BOIL option 18’May 27.0 CALL, where we have held 9 pieces. Since the price of the underlying asset was above the strike level, we did not assign the shares, we rolled the contract into the next expiration month.

It’s a pity that the BOIL price had been below 27 dollars and in the last days before the expiration it has risen above 27 USD. We had set the GTC order on take-profit to $ 0.20, but the price unfortunately did not get there, and we could not make a profit.

We have rolled our positions in two ways. We have rolled over the larger part of five options on the same strike for a credit of 55 cents. Since the spot price has risen above $ 28, this option has a higher delta and is therefore more aggressive. But good thing is that we managed to keep the exposure at the same strike and we got an option bonus of about 2% per month.

The second part of the rolling has been done conservatively. We increased the strike by about 4% to $ 28, which cost us $ 0.10. Interestingly, we’ve been able to make this adjustment with the negative $ -1 commissions. On the first roll, we earned a net credit on fees of USD 272.5, on the second roll we paid 39 USD for the debit. Thus, the net premium for the next month was only $ 233, which is only 0.2%. If we would like to maximize the return, we would have chosen the same strike 27. If we would like to be very defensive, we would move the whole position to level 28.

However, we wanted to show you both approaches.

More detailed comments can be found in the gas trading report.

Note: Given that the full access to the section on the server for uploading a portfolio of reports and detailed comments is not yet working (the latest modifications are in progress), there might be minor changes applied. If everything is ready as of today (Thursday), you will find an account report including my comments for download in this section (detailed info should be sent to your e-mail). If that was not the case, the report and my comment will come out this Friday as a separate article on the natural gas trading series. Anyway, of course, you will not be cut off trading information on this account. Thank you for understanding.

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