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Far out trades

  1. Have some questions for bwb traders
    Placing the trade too far out the amount of credit would be little especially market has rally and dte has fall. In such situations what are the ways to adjust the bwb to upside given little credit? Adding more contracts would increase risk and the amount of little credit does not justify the risk
     
  2. If I understood your question correctly you have a couple of choices. First, you could roll down all or some of the upside options. Basically, by doing this you, will be raising the right side of the BWB. Of course, you will be adding risk to the downside (left side) of the BWB. Another option would be to overlay a fly, calendar, or IC to the upside. Again, you will be increasing risk (i.e., margin). In this case, you will also be complicating the trade. I am sure that there are other ideas out there. Hope that this helps.
     
  3. Andrew thank for your suggestions and have consider what you had said. Are you saying about rolling down the upper long?
     
  4. Yes. Roll all or a portion of them down (i.e., closer to your short puts). This will lift up the expiration graph on the right side. In the Road Trip trade you should begin to do this when you are 30 points above your upper long strike. I typically roll a little bit at a time so that Delta remains negative or flat. I try to avoid positive delta as much as possible.
     
  5. How much price strikes do you roll And what do you do with the trade after you roll and market reverses? Not uncommon to have such situations
     
  6. I don't really a "rule" as to how many contracts or how many strikes I roll down to. That said, I typically roll one or two strikes down with whatever it takes to get delta mildly negative. I also look how far the expiration graph is being raised. Where I am in the trade relative to DTE and profitability comes into play as to how much I roll down and how many contracts.

    If the market has been aggressively moving up, I may be cautious about rolling. If it does reverse, I will wait until I am about somewhere between the short puts and the lower long put before doing something. The speed of the market move down is a factor. Wish I could be more specific, but I don't have a fixed rule. Again, I am just looking at delta, where I am in the trade in terms of DTE and profits (or loss). Hope that his helps you.
     
  7. Say market is moving up with speed is not better to roll down due to market price is moving up rapidly. Why do you have to be cautious? In normal market how many max strikes price do you down vs in difficult market and how do you guard against spike in volaility?
     
  8. Relative to your first question.....My feeling is that if the market is moving up with speed it pays to be cautious in how many contracts you roll down because it is likely that there will be a pullback. I tend to adjust in increments. This probably hurts my profitability, but ususally keeps me from over adjusting.

    Relative to your second question, I do not have a fixed rule on max strikes to move down or amount of contracts. It really just depends on where I am in the trade in terms of profit target (or max loss) and DTE.

    I don't really "guard against" vol spikes. That is a risk of trading these types of trades. Your trade plan should include adjustments such as adding a put debit spread or put or even taking the position off if there is a large move down. Adding a put debit spread or put will reduce vega. Of course, the trade-off is that theta will be hurt.

    Hopefully, some other folks on here who are much more experienced than I am, will chime in with their thoughts. I would also suggest looking at some of the recordings in the library on the Road Trip, Kevlar and Rhino as many of your questions are answered more clearly than I can answer them.
     
  9. Rolling down some of the upper longs or rolling up some of the shorts is a risk-off strategy which will raise the expiration graph but increase down side risk. This is always a gray area unless you are close to expiration. If there is a lot of time left in the trade then you may need to consider rolling up the entire structure or at least stretching it by rolling up the upper half. This may be the only way to produce more than minor profits with a BWB in a strong bull trend.
     
  10. Acs what do you refer to about rolling the upper half portion of the trade? Have you guys trade bwb in some big pullback How do you handle the trade?
     
  11. When you roll up only the upper half you create a condor like structure. For example a +10 2100 -20 2160 +10 2200 might become a +10 2100 -10 2160 -10 2170 +10 2210. All of these adjustments have their own benefits and weaknesses and need to be matched to current conditions and expectations going forward. Big moves down are the main vulnerability of a BWB especially early in the trade before the T+0 line has had time to rise OR after an upside adjustment that increases the difference between the credit and debit spread portions of the structure. This is why trading is an art and not a science. The market always seems to do things slightly differently and an adjustment that worked last time may need to be altered now or changed completely.
     
  12. Andrew you mentioned about doing a roll down of the put in market rally. Did some backtest and with price brought 80 to 90 cent using spy. With market rally the put value is decreasing and doing rh on one or two strikes bring little at 20 to 30 cents at most. This is insufficient to overcome the debit. The credit from rh is the amt lifting the expiration graph right
     
  13. The upper half of a butterfly is a debit spread. When you either roll the upper long put lower or roll some of the short puts higher, you are reducing the size of that debit spread by doing a credit spread. The amount of credit you get is what raises the upper expiration line and yes when the market is far above the butterfly or gets close to expiration that credit can become too small to be worthwhile compared to the risk it creates. You are always balancing risk with reward when doing these adjustments.
     
  14. ACS find that with market rallying too quick the rh would not really possible to lean towards bullish due to small credit insufficient to overcome the debit. There is also the risk of market price pullback after doing rh. Any other techniques to lean more bullish in market rally? Dont understand how the guys doing rtt having a high return watching their presentation.
     
  15. This is why getting into the RTT as cheaply as possible is really important. Tom and Dan have frequently mentioned 5% of margin as a guideline. If your initial debit is too high it's much harder to raise the right of the risk graph with a RH.
     
  16. I very much agree with ACS's and Steve's comments. In addition, one action some RTT take is to layer on another fly to the upside to improve profitability. I believe that this is a technique that Dan and Tom teach as pet of their service. You may want to consider signing up. I may do so as well.
     
  17. Yes, Tom and I (RTT Service) periodically add layers which are superimposed on the basic RTT butterfly core structure. These layers include: DS/CS Combo trades, Baby butters, put credit spreads, and unbalanced condors. The Service has specific guidelines for these techniques which often serve to increase the total profits of the strategy. The 5% of margin guideline mentioned above is integral to the overall strategy, and contributes to the effectiveness of the Reverse Harvey methodology.
     
  18. Dgh does the service send out orders way in advance or during market trading?
    Do you typically do rh say market price rally quickly and trade is just put on in couple of market trading session? Talking about simple rtt without those trades
     
  19. The RTT text alerts are sent during market hours, usually within the first 2 1/2 hours after the open. In addition, we have a Daily Planner which is available the evening prior to market open which discusses proposed plans of actions for each of the cycles as well as market commentary. The RTT Service also provides access to the Trade Entry Tool, historical trade metrics and P/L parameters, and other features.
     
  20. Another technique you may want to try on the RTT is to move the tent a little farther from the money, and go farther out in time, this way you will have more time to raise the right side of the chart. Basically, you should be able to have it behave similar to the Space Trip Trade, both trades work on similar principals, but the margin is much less with the RTT. The Space Trip Trade seems to be working great using the ES, rather than the SPX. I go out far in time and very slowly raise the right side of the trade up. Eventually you land up with a trade that will make money going up or down, but more when it goes down. The risk of these trades is if the market goes down hard as soon as you put them on, or if the market rallies quickly to the up side. In this case you may not be able to get the right side above zero, but your chance is better going far out in time.
     
  21. Agree with jpresser that it is better going out further out in time. I have backed-tested and do trade this real time on the SPX and spy. The gamma gets kind of big at 50 dte and 70 to 80 dte seems nice. When there is a sudden drop in the market and it is down to say 30-50 days left, it seems that often it is better to take it off or re-position a new trade out in time. I tried this numerous times for data from 2007 and it often does not make much sense to hang in for drops that keep dropping.

    Some people speak negatively regarding, however I have learned a lot doing this. Below is my 7th back testing of the trade assuming a fixed amount of $3 - 3.5K per trade.

    There are certain scenarios where the trade does not do well. In a bear market, I have found it does not do well and the large continuation of drops do hurt. Use of a set of moving averages (assuming they work) does help the trade.

    As time goes forward the power of the long puts deteriorate and pulling them in helps bring in more credit as well as the lower put which provides some protection when moved up. This has the addition effect of reducing the amount of margin.
    Testing on Wave.GIF
     
  22. Thanks for your comments. Tom and I sometimes go "deep and wide" on our private and managed money accounts.
     
  23. How far out in time on the /ES are you going? 120+ days? If so, what's been your experience getting fills near-the-mid in /ES vs. SPX?
     
  24. For the space trip trade I have been using the ES for September, December, and March of next year. The December and March are newer trades. The September has the right side up to around 500 dollars, and still has a nice negative delta in it. My RTT trades i have been following the 70 to 80 DTEs, but I think you could use the BWB in the same way you use the unbalanced condor with very similar results. One other thing I tweeked with the Space trip trade is that I am placing my long put spread at around 30 delta, and short spreads at around 5 to 8 delta. You get the trade to transform quickly into having great down side profits and are your risk is really far away. All my RTT have been using the SPX, and space trips with th ES. I am thinking of trying RTT with the ES, but haven't tried this yet. My fills have all been 25 cents above the mid which is the next valid price you can get. The ES for options 5 and above trades at 25 cent increments. I get 25 cents above mid to fill instantly. I have traded these after work, maybe you could do better during regular market hours.
     
  25. Hi,

    Thanks for posting this graphic. May I know which kind of strategy this is?