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SPX JUN 28 Broken Wing Butterfly Trade

Discussion in 'Options' started by tom, Jun 5, 2014.

  1. tom

    tom Administrator Staff Member

  2. tom

    tom Administrator Staff Member

    I had trouble adding these to the previous post....

    2014-06-05_SPX-BWB-Summary.png 2014-06-05_SPX-BWB-Matrix.png 2014-06-05_SPX-BWB.png
     
  3. tom

    tom Administrator Staff Member

    After the SPX rocketed up today, I closed the put debit spread for $8.55. That leaves an expiration profit of $797 if SPX stays above 1910. I'll posted an updated images later today.
     
  4. tom

    tom Administrator Staff Member

    Here are the updated images for the trade. Notice on the far left of the chart, the expected return (E.R.) of $1,330 +/- 482 with a probability of profit of 98% for the T+12 line. For the expiration line, the expiration break even is at 1868. 1870 has a 5% probability of touching it and a 2.4% probability of being in-the-money (ITM) at expiration. The trade is in a very comfortable position now.

    2014-06-05_SPX-Matrix.png
    2014-06-06_SPX-Chart.png 2014-06-05_SPX-Trade-Log.png
     
  5. Gabor Maly

    Gabor Maly Well-Known Member

    Tom, when I enter this position as a backtest I get 25+ delta to start out with. Were you not writing you want to get in with a neutral delta? Thanks
     
  6. tom

    tom Administrator Staff Member

    Hi Gabor. The delta I started with was +4 if you look at the greeks on the initial trade entry. I thought that was pretty neutral. What software platform are you getting a +25 delta?
     
  7. Gabor Maly

    Gabor Maly Well-Known Member

    Thanks Tom, I am using ONE, and tried to set up the trade on Weds (went through hour by hour to see if I would get the same), anyway it is probably an issue at my end. So normally you want to be within +- 5 delta? best
     
  8. tom

    tom Administrator Staff Member

    One issue might be that I'm using OptionVue which has a "True Delta" calculation that I use. I find it to be a bit more accurate that the standard delta.

    I wouldn't necessarily say 5 delta, but low. :)
     
  9. tom

    tom Administrator Staff Member

    The SPX rallied again. It's looking very strong. The trade is currently +$717 (+2.32%) after just a few days thanks to that strong rally. I'm thinking of buying back one of my 1910/1890 spreads (maybe two). It would create another $200 of profit and increase the expiration profit by +25% (roughly) but doesn't affect the risk very much. If the markets are up again on Monday, I might just close the trade and start a new one. I'll see how the markets are on Monday morning.

    Here's the position and the proposed adjustment.

    2014-06-07_SPX-BWB-Matrix.png

    2014-06-07_SPX-BWB-Chart.png

    2014-06-07_SPX-BWB-Greeks.png
     
    Last edited: Jun 7, 2014
  10. tom

    tom Administrator Staff Member

    With the standard deviation envelope shrinking and the market still showing strength, I closed a few put debit spreads yesterday to bring in a bit more cash to the trade on the call side. Here's where I am now:

    2014-06-09_SPX-Matrix.png

    Analysis Chart. Note the standard deviation bars at the bottom of the chart. The violet is 1 standard deviation and the light blue is 2 standard deviations of movement on Jun 22nd. You can calculate your own Standard Deviations here.
    2014-06-09_SPX-Chart.png

    Greeks Calculator Output
    (see http://capitaldiscussions.com/option-position-greeks-calculator )
    2014-06-09_SPX-Greeks.png

    Trades at Interactive Brokers
    2014-06-09_SPX-Broker.png
     
    Last edited: Jun 10, 2014
  11. tom

    tom Administrator Staff Member

    The trade is using $35,399 of Reg T margin and is +$803 (+2.2%) at the close yesterday after a week in the trade.
    OptionVue is estimating the probability of profit (P.P. on the chart) is 100% on June 23. Probability of Touching the expiration break even is about 1% so the trade is in pretty good shape. The profit on the call side at expiration is potentially $1323 (+3.73%).

    Matrix
    2014-06-11_SPX-Matrix.png

    Analyze Chart
    2014-06-11_SPX-Chart.png

    Greeks Analysis

    2014-06-11_SPX-Greeks.png
     
    Last edited: Jun 12, 2014
  12. RayM

    RayM Well-Known Member

    Tom,
    Love the post, screenshots, and calculator... thank you.
    http://capitaldiscussions.com/option-position-greeks-calculator
    http://forums.capitaldiscussions.com/threads/spx-jun-broken-wing-butterfly-trade.20/#post-87
    Few question please (sorry if too many or if it feels like a test).
    1) Concerning the calculator's Ratio of greeks,
    a. What Vol would I enter for RUT (e.g. RVX, VIX, VXX, TOS-Many different place & values)
    b. Do you give Delta/Gamma more weight being first in the list ?
    c. What do you deduce (layman's take away; what does it pragmatically mean to me)
    from and what are the ranges used to determine the color
    (Sign, Magnitude, Range, Color)
    1. Delta/Gamma
    2. Theta/Delta
    3. Vega/Theta
    d. Concerning "Estimated Greeks (1 Day + 1 Sigma)
    1. Are the estimates visual in OptionVue or from a formulas ?
    2. When estimating with down/up moves to get (1)Delta & (2)Theta/Delta
    do you also adjust for Volatility and if so, how do you calculate, estimate, or best guess its value ?
     
  13. tom

    tom Administrator Staff Member

    Hi Ray,
    I enter the volatility for the ATM put or call. In the case of my SPX trade, I use the ATM put vol for the expiry I’m trading.
    No extra weight for Delta/Gamma. That’s more important for gamma scalping I think. I use the flatness of the T+0 line as a better indicator for me, but some people love ratios :)

    Delta/Gamma should be as high as possible. The less it is, the more Gamma can hurt your position.
    Theta/Delta. Some people like it 10:1 but as long as it’s greater than 1:1 it should be ok generally.

    Here are the ratio thresholds. They are calculated without the sign (I use absolute values):
    Theta/Delta
    > 1.5 Orange
    > 1.0 Dark yellow
    > 0.5 Light yellow
    <= 0.5 Green

    Vega/Theta
    > 5.0 Orange
    <= 5.0 Green

    The estimated greeks for +/- 1 sigma are calculated from the form inputs.
    It assumes theta and IV do not change, which is obviously not correct and why it is just an estimate. :cool:

    I'm glad you like the tool. I do too!
     
  14. tom

    tom Administrator Staff Member

    SPX was closed at 1930.11 -13.88 -0.71% yesterday. Here are the weekly and daily charts:

    SPX Weekly Chart
    2014-06-12_SPX-Price-Weekly.png

    SPX Daily Chart
    2014-06-12_SPX-Price-Daily.png

    ES futures are currently -2.00 which is essentially flat. Today is Friday the 13th with the Producer Price Index report at 8:30am ET and the Consumer Sentiment report at 9:55am ET(see our calendar)

    Matrix
    2014-06-12_SPX-Matrix.png

    Chart
    2014-06-12_SPX-Chart.png

    Greeks
    (see Greek Position Calculator)
    2014-06-12_SPX-Greeks.png

    SUMMARY
    Despite the sell off yesterday, it was relatively mild. Today's open seems to be slight down, but essentially flat. My position has great coverage to the down side. The Theta/Delta ratio of 2.12 if we close down one sigma at 1918.60 today is still acceptable.

    The trade is in an excellent position to have a good profit this month. Theta is starting to increase as we go lower and get closer to expiration. I'm going to monitor the market today but try to let Theta do it's job and not over adjust.
     
  15. tom

    tom Administrator Staff Member

    Last edited: Jun 14, 2014
  16. tom

    tom Administrator Staff Member

    Trade update for Jun 17, 2014. SPX is up today. This trade is positive delta and negative vega which means it's a good day. The position continues to make make money. The only struggle for this trade is if the market has a really big down move. Time is ticking away on this trade. There are only 11 days left until expiration. I don't anticipate needing the margin so my tentative plan now is to let it go into expiration. The short strike is nearly 3 sigma from the spot price. It's still at an 8 delta so I'll keep watching it naturally.

    Currently +$755 on $35,399 of Reg T margin (+2.13%)

    Nothing to do today.

    Matrix
    2014-06-17-SPX-JUNW4-Matrix.png

    Analysis Chart
    I like to position the chart so I can see where the 2 sigma price is...just about 1900 on this chart.

    2014-06-17-SPX-JUNW4-Chart.png

    Greeks Analysis
    2014-06-17-SPX-JUNW4-Greeks.png
     
  17. tom

    tom Administrator Staff Member

    Trade update for Jun 18th. The market surged up after the FOMC announcement. SPX closed at 1957.00 +15.00. The trade is bullish and is near the maximum profit. There is very little risk of SPX selling off so much that we lose money. I don't need the margin released yet so I'm planning on taking this into expiration in nine days.

    Matrix
    2014-06-18_SPX-JUN28-BWB-Matrix.png

    Analyze Chart
    2014-06-18_SPX-JUN28-BWB-Chart.png
     
  18. tom

    tom Administrator Staff Member

    Trade update
    SPX 1967.62 +5.01 (0.26%). Our shorts are at 1890 with -0.63 delta with 4 days to go until they expire. I put in a GTC order to close the last 5 spreads at $0.10. Currently they are trading at $0.15. I'm currently at +$1,226 profit on $26,806 of margin (+4.57%).

    OptionVue Matrix
    2014-06-20_SPX_JUNW4_BWB_Matrix.png

    OptionVue Analyze Chart
    2014-06-20_SPX_JUNW4_BWB_Chart.png

    Greeks Calculations
    2014-06-20_SPX_JUNW4_BWB_Greeks.png
     
  19. tom

    tom Administrator Staff Member

    It looks like I forgot to post the closing trades for the upper part of the butterfly.

    Interactive Brokers Trade Log from Jun 20th
    2014-06-20_SPX_JUNW3_BWB_TradesB.png

    This left the current 5 lot of 1890/1830 put vertical spreads.
     
  20. tom

    tom Administrator Staff Member

    Trade update. SPX 1950.00 -12.50
    This trade is winding down. The short delta is -1.19. There are only two trading days left in this trade, with expiration on Friday morning. I don't anticipate having to do anything. ES futures are currently 1944.75 +1.50 so I think we're ok letting this keep going into Friday expiration but I'll keep an eye on it today.

    OptionVue Matrix
    2014-06-24_SPX_JUNW3_BWB_Matrix-Close.png

    OptionVue Analysis Chart
    2014-06-24_SPX_JUNW3_BWB_Chart-Close.png

    Greeks Calculations
    2014-06-24_SPX_JUNW3_BWB_Greeks-Close.png
     

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