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SPX Jul 17 Broken Wing Butterfly

Discussion in 'Options' started by tom, Jun 21, 2014.

  1. tom

    tom Administrator Staff Member

  2. Chuck

    Chuck Active Member

    Hey Tom, your signature line is really funny. What was your trigger for entry? I see that $SKEW and $SDEX are high yet SPX IV is below its 30D median.
     
  3. tom

    tom Administrator Staff Member

    Hi Chuck. I can't remember when I saw that signature line but I've always remembered it. :)

    My triggers were:
    - I wanted to get a trade on as my Jun 28th trade is ready to come off
    - I think SPX is due for some consolidation and this trade does well if it sits in a range so I'm hoping for SPX to bounce around the current price level for the next week or two.
     
  4. maxtodorov

    maxtodorov Active Member

    I am looking at this Trade in OptioNET and July 8th looks less profitable than yours.... I am wondering if this is OptionNet Error, or something changed?
    Example at 1930 - I barely have $300. vs. your graph shows $2K.


    risk2.jpg
     
  5. tom

    tom Administrator Staff Member

    Hi Max,

    Are you using the same expiration? This trade used the Jul 17 expiration options.
     
  6. maxtodorov

    maxtodorov Active Member

    Yes, July monthlies. May be one of those OptionNET Issues. If it is, thats terrible, because the T+ line looks much worth than yours.
    checkoptions.jpg
     
  7. maxtodorov

    maxtodorov Active Member

    As you can see I even took it to July 8th on instead of July 5th on yours.
     
  8. maxtodorov

    maxtodorov Active Member

    The other explanation is probably volatility.. There was a minor pop.... yours was modeled at 8.7 mine (I am assuming is 9.31)
     
  9. tom

    tom Administrator Staff Member

    Trade update. SPX 1950.00 -12.50
    We finally had a decent down day so I had to put my put debit spread on. Because I waited longer than I should have to put the hedge on, I added another butterfly to help pay for the hedge. We're sitting at the upper long put now. The Greeks Calculator is showing my that my delta is starting to get on the "slippery slope" (as Dan Harvey says) if we have a one sigma move down. Note that Gamma is starting to increase. You can see that visually as the slope of the T+0 line is less straight.

    OptionVue Matrix
    2014-06-24_SPX-JULW3-BWB-Matrix-Close.png

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

    Greeks Calculations
    2014-06-24_SPX-JULW3-BWB-Greeks-Close.png

    Interactive Broker Trade Log
    2014-06-24_SPX-JULW3-BWB-Trades-Close.png
     
  10. maxtodorov

    maxtodorov Active Member

    So if today continued down, at what Delta or what strike would you add another Debit Spread? If it continued further down, would you take it of at certain point based on strikes/DELTA or once you hit a certain P&L point (e.i 15% loss)?
     
  11. tom

    tom Administrator Staff Member

    Hi Max,
    I was looking at 1939 to take action on the downside. That would have completed the 2B reversal pattern so I would have gotten aggressively short. Probably even shorting some futures :) If it was later on in the trade, there would have been some profit so I probably would have closed the trade. This moved down pretty quickly after I entered to the T+0 line is still a bit droopy.

    This is kind of a trader's choice situation. I don't use max losses, but I try to keep losses small (4% or less if possible). This trade has a very high probability of working. If it's not working, I'm more inclined to close it after one adjustment if that's not enough rather than fight it.
     
  12. tom

    tom Administrator Staff Member

    Trade Update
    SPX 1959.50 +9.50
    With the rally today, our trade is in a much more comfortable position. The Greeks Calculator confirms it with nice ratios. I'll have to wait until next week to let Theta work, but the returns should be ok unless we have a huge rally or huge sell off in the next 8-10 days. I don't anticipate needing to do anything tomorrow, but I'll keep an eye on the market anyway :)

    OptionVue Matrix
    2014-06-26 SPX JULW2 BWB Matrix Close.png

    OptionVue Analyze Chart
    2014-06-26 SPX JULW2 BWB Chart Close.png

    Greeks Calculations
    2014-06-26 SPX JULW2 BWB Greeks Close.png
     
  13. tom

    tom Administrator Staff Member

    Trade Update
    SPX 1957.20 -2.30
    The position is doing ok. Greeks are good and SPX is slowing drifting towards our big profit zone. ES futures are down 3.75 as I write this, which would put SPX near 1953.50 at the open. We should get a nice bump from Theta over the weekend.

    OptionVue Matrix
    2014-06-26 SPX JULW2 BWB Matrix Closeb.png

    OptionVue Analyze Chart
    2014-06-26 SPX JULW2 BWB Chart Closeb.png

    Greeks Calculations
    2014-06-26 SPX JULW2 BWB Greeks Closeb.png
     
  14. tom

    tom Administrator Staff Member

    Trade Update
    SPX 1961.04 +3.80
    SPX was down a few points most of the day but rallied near the close. It's hard to figure out what this market is going to do. Naturally, our positive delta and negative vega trade did ok today cutting the loss to under $180. We should be in positive territory on Monday with +109.6 of Theta going into the weekend. Nothing to do today.

    OptionVue Matrix
    2014-06-27 SPX JULW2 BWB Matrix Close.png

    OptionVue Analyze Chart
    2014-06-27 SPX JULW2 BWB Chart Close.png

    Greeks Calculations
    2014-06-27 SPX JULW2 BWB Greeks Close.png
     
  15. tom

    tom Administrator Staff Member

    Trade Update
    SPX 1962.70 +1.80
    With the time window shrinking and SPX up again, I closed the put debit spread hedge, which is effectively buying a bullish put vertical spread. This brought in $4.25 of cash which raises the call side profit at expiration from $147 to $569 (after commissions). I'm looking to exit in one week on July 7th on the T+7 line if things go well. That should bring in +$1000 or more, or around +3% on the trade. If SPX sells off a bit, it could be higher as long as we don't have a market melt down.

    OptionVue Matrix
    2014-06-30 SPX JULW3 BWB Matrix.png

    OptionVue Analyze Chart
    2014-06-30 SPX JULW3 BWB Chart.png

    Greeks Calculation
    2014-06-30 SPX JULW3 BWB Greeks.png

    Interactive Brokers Trade Log
    2014-06-30 SPX JULW3 BWB Trades.png
     
  16. maxtodorov

    maxtodorov Active Member

    I feel like market is crashing up :)
     
  17. tom

    tom Administrator Staff Member

    I'm not unhappy about it with these BWB positions. I found this article about why the market rallied today:
    http://www.marketwatch.com/story/us-stock-market-futures-rise-auto-sales-pmi-due-2014-07-01

    The markets kicked off the second half of 2014 even as the headline numbers on the ISM manufacturing data and Markit’s PMI index narrowly missed expectations.
    The S&P 500 SPX +0.88% gained 12 points, or 0.6%, to 1,972.60, scaling an intraday record high.
    Marc Doss, regional CIO for Wells Fargo Private Bank said that economic data so far point to a rebound in the U.S. economy.
    “After a terrible first quarter, we are seeing a rebound in housing, manufacturing. The economy is growing but slowly enough for the Fed to keep rates low for a while. This environment is very favorable for equities,” Doss said.​

    Looks like the markets are pretty happy today.
     
  18. Trader G

    Trader G Well-Known Member

    I like opening up the top end on these flys so that the market can go to the moon and you can come out with a small win. My bwb flys in the past typically required adjustments to the upside and unfortunately every adjustment as it goes up meant more risk to the downside if it snaps back. With your version, a sharp down move is really the only thing that hurts this trade. I like having only one thing to insure (net long some puts in the portfolio and you have it covered).
     
  19. tom

    tom Administrator Staff Member

    Me too! This is how Dan Harvey does it and it works like a treat. I think having an extra long put would be good idea for when the market finally gets tired and sells off.
     
  20. tom

    tom Administrator Staff Member

    Trade Update
    SPX 1974.30 +13.10
    So my positive delta fly is getting less positive because it's getting closer to the maximum profit for the trade on the up side. The T+0 line is getting flatter and flatter. I sold another 1950/1930 put spread today for $2.80. The same spread I sold yesterday for $4.25! Maximum profit at expiration above 1950 is $846 in 17-days. I'm going to leave the trade on a bit longer and see if I can squeeze a bit more profit. If the SPX sells off in the next week or so, the profit can increase nicely.

    OptionVue Matrix
    2014-07-01 SPX JULW3 BWB Matrix.png

    OptionVue Analyze Chart
    2014-07-01 SPX JULW3 BWB Chart.png

    Greeks Calculations
    2014-07-01 SPX JULW3 BWB Greeks.png

    Interactive Brokers Trade Log
    2014-07-01 SPX JULW3 BWB Trades.png
     

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