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Kevlar into Expiration

Discussion in 'General Discussion' started by will, May 20, 2016.

  1. will

    will Well-Known Member

    Does anyone here trade Kevlars into Expiration? Or just within a week or so of Expiration? When there is less than 30 days in the trade, it is hard to keep the delta (positive of negative) under 5 or 6 per fly. Seems like you have to modify the guidelines a bit to allow more delta when less than 30 days to expiration. Locke does this with some of his trades and it seems like a reasonable strategy. Any Kevlar traders want to share their experiences with this? Thanks
     
  2. Paul Demers

    Paul Demers Well-Known Member

    I am sure there are people here that trade into expiration week and maybe they will chime in. I can only give you what my experience has been and that is if I wanted an easy way to take a winning trade and turn it into a loser then I would trade it into expiration.
     
  3. will

    will Well-Known Member

    I hear that. If I'm trading a fly with 100 and 75 point wings,and I'm right in the middle of the tent with a few weeks to go, I'd say the risk is minimal. Situational expiration I guess you can say. I'd still attempt to control delta and adjust by reducing risk.

    Sent from my SAMSUNG-SM-G870A using Tapatalk
     
  4. Paul Demers

    Paul Demers Well-Known Member

    I am sorry, I misunderstood when you said "Does anyone here trade Kevlars into Expiration?". A few weeks is much different than the last week.
     
  5. will

    will Well-Known Member

    Nah you had it right. I really mean expiring it if circumstances allowed for there to be minimal or controlled risk. If things get hairy or risk can't be controlled, exit then by all means. I'm was referencing john locke's trades because he expires his trades in certain situations. That's kind of what I was getting at.

    Also I was asking if kevlar traders modify their rules or guidelines on delta as expiration comes within say 30 days.
     
  6. will

    will Well-Known Member

    I'm talking about taking a 60 day trade that is already profitable, but you'd like to pull more out of it. Price may be in the the middle of the tent or delta is controlled, so your risk is minimal and you will be profitable even if there is price movement against you. As you near expiration or really less than 30 days it is difficult to keep the the dela +/- 5 or 6 per fly as suggested by riggio and raval. I was thinking of allowing 10 to 12 delta per fly when less than 21 days for example. Hope that helps to be more clear.
     
  7. Paul Demers

    Paul Demers Well-Known Member

    I understand now. I went back and did a little back testing. The fly structure may not be right as I am not that familiar with the new Kevlar strategy. I went back to 1/16/2015 and put a put butterfly on at 2110 as I wanted to be centered under the expiration tent at 21DTE. I did the butterfly with a 60/50 wing width. Then fast forwarded to 2/27/2015 to get to 21DTE. I then started moving forward in half hour increments to see what it looked like. I did pick this time frame because there would be a big drop. It looks to me that the 10 to 20 delta adjustment would work and I think, based on this one test I would use the 12 delta adjustment point. You should find a point where the market takes a sharp upturn right after 21DTE to see how the trade would react.
     
  8. Paul Demers

    Paul Demers Well-Known Member

    Oh and forgot one other thing. You would most likely need to be sitting at your computer as at some points I was chasing the markets putting on adjustments to keep the deltas in check.
     
  9. will

    will Well-Known Member

    Thanks for the info. I appreciate the backtesting. It does turn into a high maintenance trade around expiration week, that's for sure.

    For kevlar size I just use whatever ratio gives me the correct t0 line. It changes based on the volatility skew. I like the 75 to 100 most the time,or 45 to 60 which is the same ratio.

    Sent from my SAMSUNG-SM-G870A using Tapatalk
     
  10. AKJ

    AKJ Well-Known Member

    I trade a similar structure (basically a trade that combines a lot of the concepts of Kevlar, M3, and Road Trip) and my expiration guidelines are to close at profit target at 21 DTE, and have progressively lower profit targets from 21 to 10 DTE. I close out regardless of P&L at 10 DTE. Too much gamma in the trade at that point for my appetite.
     

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