lystn

Hey everyone. It’s Kirk here again and welcome back to the daily call. On today’s call, we’re going to talk about how to calculate profits and losses when trading options. I think this is actually pretty easy, but I think actually, people overcomplicate this a lot when it comes to options. The easiest way to calculate profits and losses is literally credits and debits. I often get emails from people who get confused when we start adjusting trades because there’s just a lot going on. I get that. I mean, there’s strike prices and contract months and we’re rolling this strike to that strike and there’s debits and credits. They get really confused on how everything works. What I always try to do… You can see a lot of these videos if you want to see this visually. We’ve got a lot of videos where we’ll go through and there’s a lot of case studies added to YouTube and even our website, so you can just search a bunch of these case studies and that might help out or just scroll back through our recent YouTube videos. There’s probably one in there likely in the last 10 or 15 days that we’ve actually done where we go through step by step and show you our account and show you how the credits and debits work. But I think the best way to track all of this stuff is to literally go through your broker statement and do credits and debits for everything that you do. If you sold options initially, then you’d took in a credit. You just pencil out on paper if you want to initially, like plus $200. You got a credit of $200. Now, your goal is to keep that $200 as much as possible. If you need to adjust a position, you probably adjust it for a credit or if you follow how we adjust, we adjust for a credit. Now, you adjust for a $50 credit, now you add $50 and now your additional credits now totaled $250. Okay, great, now you’re at $250. At the end of the day, if you want to make money, you need to buyback your positions, post adjustment, whatever, no adjustment. You need to buyback the positions for less than $250. Now, you look at the markets, you can see it might cost $260 to buy it back or it might cost $200 to buy it back. Those are debits. Whenever you pay money out, you obviously are paying a debit. When you collect money in, it’s a credit. As long as you keep that framework in mind, it’s actually fairly easy to follow different strategies and follow different adjustments because you’re always just simply calculating debits and credits. Now, I know that most broker platforms don’t make it insanely easy to follow this on trades. You have to either dig through or filter your trades for a particular indicator or a particular ticker symbol. If you trade XLF today and don’t adjust it for another 10 days, it’s not going to necessarily show up side by side on your broker statement. But in most cases, you can filter things out and only look at that particular ticker or whatever the case is. What I often like to do and this might help out if you guys are making adjustments, is that when I make an adjustment, I do have a little notebook literally next to my desk. It’s just simple pen and paper. It’s not like something fancy. You don’t need to go out and buy something insane. It’s just a little notebook that I keep and a scratchpad and when I make an adjustment, I simply track it there. I just say, “Okay, XLF.” I look at what our initial credit was before the adjustment. Okay, great. I place the order for the adjustment. Now, I know what my total is in XLF. I don’t have to worry about it any other time. I know – “Hey, I’ve got a total of $250 in XLF post adjustments.” Then when I’m actually monitoring positions, if I’m questionable and I don’t remember, I can just quickly look at my notepad right by my desk and see. “Okay, great. I’ve got $250 in credit. It cost $200 to close. Wonderful! I’ll do that.” I think that’s honestly an easy way to actually keep track of things. I know we’ll be talking later on in a couple of days here in another daily call episode about how you should keep a journal and log of everything, but that’s an easy way to calculate those profits going forward. Again, we’ve got some videos on the website that might help out. We recently did a very good video on a TLT assignment and so, that’s a good one that you guys can check out for sure because I think that podcast, Show 106 in our regular weekly podcast helps out because we do show the account statement on those show notes pages of all the credits and debits that go into it and we walk through it step by step. If you need a little bit more handholding and want to see another example, again, check out Show 106 of our regular weekly podcast. Until next time, happy trading!