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SPX JUL 11 Broken Wing Butterfly Trade

Discussion in 'Options' started by tom, Jun 14, 2014.

  1. tom

    tom Administrator Staff Member

    I put a new SPX broken wing butterfly trade on yesterday for the Jul 11th expiration (29 days to expiration). I was filled at between $1.60 and $1.70 credit pre spread for the main trade. After I had six spreads filled, I add the put debit spread for a $3.45 debit. I thought I was selling the 1890 put in that debit spread but I grabbed the line above it accidentally so I'm short the 1895 puts instead. Not too big of a deal.

    SPX Weekly Price Chart
    This still looks very bullish to me.
    2014-06-13_SPX-Weekly-Chart.png

    SPX Daily Price Chart
    Note: If I use Joe Ross's "Trader's Trick Entry", I would go short below 1925.77 as we have formed a 1-2-3 high.
    2014-06-13_SPX-Daily-Chart.png

    Matrix
    2014-06-13_SPX-W2-BWB-Matrix.png

    Analyze Chart
    2014-06-13_SPX-W2-BWB-Chart.png

    Greeks Analysis

    (see http://capitaldiscussions.com/option-position-greeks-calculator )
    2014-06-13_SPX-W2-BWB-Greeks.png

    Broker Trade Log
    2014-06-13_SPX-W2-BWB-Broker.png
     
  2. Rich S

    Rich S Member

    Hi Tom,
    When first learning this trade, would you think it could be scaled down from 8 to 2 flys with a 5 point put debit spread hedge? Something like 3 1910 P BTO, 1 1905 P STO, 4 1890 P STO and 2 1830 P BTO? The only downside I could see is a little less flexibility in adjusting the debit spread hedges.
    Would there be a better way to scale down the trade?

    Thanks,
    Rich S
     
  3. Trader G

    Trader G Well-Known Member

    One thing you can do is use SPY or IWM as a surrogate. Commissions will eat up the profit but it is a great way to learn and gives you granularity instead of just throwing on one or two flys in the SPX
     
  4. tom

    tom Administrator Staff Member

    That's a good suggestion. If you only put two flies on, the debit spread would have to be much tighter and wouldn't have the same effect on the trade. I would try to keep the 7 or 8 lots with one debit spread. You can paper trade it, use SPY or another less expensive vehicle. This should work with stocks too.
     
  5. Mike Schwartz

    Mike Schwartz Member

    Tom,
    I am new to this trade as well, although watching Greg Loehr discuss them and he puts the tent in the spot he expects the market to go to. So is that your intent here as well because you do suggest that the chart looks bullish?
     
  6. tom

    tom Administrator Staff Member

    Hi Mike,
    I'll have to play with putting it on in the other direction but I suspect the tent would be smaller and closer on the upside due to the lower IV on the call side.While the weekly chart looks bullish, the daily chart has a 1-2-3 high and I would be going short if it sells of a little bit on Monday or Tuesday (below 1925.77)
     
  7. Bohdan

    Bohdan Well-Known Member

     
  8. Trader G

    Trader G Well-Known Member

    This trade works well on the downside because of the natural skew in index equities. Your tent won't look as good on the upside and with vol already in the lower end you will find that as the market goes up vol isn't really coming out which makes the trade stay flat to the upside longer (we have even had some up days where vol has increased). I have been adding call backspreads to my portfolio as upside insurance and I am finding they work pretty well. The bwb on the call side would be the opposite of that so I would have to think you wouldn't be getting much from them. That's just what I am seeing, others may think differently.
     
  9. Bohdan

    Bohdan Well-Known Member

    Tom,
    Congratulations on a GREAT website..
     
  10. Bohdan

    Bohdan Well-Known Member

    Seems with this SBFly your 1st adjustment will be coming up soon near 1920.
    How would you adjust ??
     
  11. tom

    tom Administrator Staff Member

    Add a put debit spread to cut deltas and flatten the T+0 line
     
  12. tom

    tom Administrator Staff Member

    Thanks! There'st still lots to do :)
     
  13. tom

    tom Administrator Staff Member

    Trade update for Jun 17, 2014. As I mentioned on my trade update for my Jun28 SPX broken wing butterfly, SPX is up today and we're positive delta and negative vega, so both are helping today.

    Currently +$234 on $31,574 of margin.
    Note that the actual portfolio margin used for both trades is about $58,000 vs the $66,000+ Reg T would require so we are getting a little margin relief but not heaps.

    I'm leaving the put debit spread hedge on as the FOMC meeting announcement is tomorrow at 2:00pm ET and there's still 25 days to go on this trade. If the train starts heading South, I'll want that hedge on. For the trade expiring in 11 days, the time window has shrunk quite a bit more so I'll wait to put a hedge on that trade and see what the market action is tomorrow afternoon.

    Matrix
    2014-06-17-SPX-JULW2-Matrix.png

    Analyze Chart
    2014-06-17-SPX-JULW2-Chart.png

    Greeks Analysis
    2014-06-17-SPX-JULW2-Greeks.png
     
  14. tom

    tom Administrator Staff Member

    Trade update for Jun 18th. SPX 1957.00 +15.00 following the FOMC announcement. This is a bullish trade and benefitted from the big move up. We are at the expiration profit with 23 days to go in the trade. If SPX sell off 20+ points, the position can make more. I don't think it's worth tying up that capital when I could put a new trade on instead. I'll try to close it today and put a new trade on.

    Matrix
    2014-06-18_SPX-JUL11-BWB-Matrix.png

    Analyze Chart
    2014-06-18_SPX-JUL11-BWB-Chart.png

    Greeks Calculation
    2014-06-18_SPX-JUL11-BWB-Greeks.png
     
  15. Justin Acuna

    Justin Acuna New Member

    Tom,
    Great site! Thank you for providing the detailed info. on the bwb. When entering this trade, did you put on trade as follows:
    1. 8-lot, SPX 1890p x 1910p debit spread
    2. 8-lot, SPX 1890p x 1830p credit spread
    3. 1-lot, SPX 1895p x 1910p debit spread
    Finally, were you able to get near mid prices on your fills? If not, about how much are you willing to cave in from the mid prices?
    Thank you for your help. I look forward to further communicating w/ you about this strategy & others.
     
  16. tom

    tom Administrator Staff Member

    Justin,
    Nice to see you here! I put the trade on as a bwb in IB using the combo dialog box and it inserted the trade as a whole. I just made a short video showing how I enter the orders in Trader Workstation.

    [​IMG]
     
  17. tom

    tom Administrator Staff Member

    Trade Update
    Nearly 50 minutes into today's trading and SPX is up around $1.00 to 1963.58. My T+0 is pretty flat and my delta is slightly negative already so I'm going to hold off on adding the put debit spread.

    Here's my updated position:
    OptionVue Matrix
    2014-06-24_SPX-JULW3-BWB-Matrix.png


    OptionVue Analysis Chart
    2014-06-24_SPX-JULW3-BWB-Chart.png


    Greeks Calculator
    2014-06-24_SPX-JULW3-BWB-Greeks.png
     
  18. maxtodorov

    maxtodorov Well-Known Member

    I am very new to BWB. So if this is answered in some other post, please point me there..... Is there trade management rule/plan?

    This trade being short VEGA, what will you do in a strong move down? Let say 1925 with associated increase in IV?
    Also, on your greeks calculator it shows Delta around -1. Delta in OptionNET right now is shown at 33 or so (SPX at 1167)
     
  19. Trader G

    Trader G Well-Known Member

    I belive Tom is using Optionvue which has a different delta calculation. I have OptionNET too and neither their delta or TOS delta typically matches up. That being said, I have found most people that rely heavily on delta calculations are either using or moving to Optionvue so take that for what it's worth.
     
    maxtodorov likes this.
  20. tom

    tom Administrator Staff Member

    I am using OptionVue's "True Delta", which I've found to be very good over the years. I just closed this trade as I was near the maximum profit for it and I wanted to take a little risk off of the table. Net +$792 profit on the trade in 11 days.

    Interactive Broker's Trade Log
    2014-06-24_SPX_JULW2_BWB_Trades.png

    OptionVue Status Report
    2014-06-24_SPX_JULW2_BWB_Status.png
     

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