Spent this weekend on analyzing my butterfly, the trade rules and how they worked out in this volatile market. I came to the conclusion that in the first week of the trade, the butterfly ( with exception of exceptional market drops) does NOT need any adjustment.
The butterfly is essentially a credit spread and a debit spread.
Going down the credit spread will make money; max profit is the credit received
Going up the debit spread will make money; max profit the width of the spread minus debit paid.
The underlying needs to run so far down or up that closing the losing side creates a bigger lose than the max profit on the other side. This is hardly possible within one week. The second week you will have already received some theta, which will help to off set market moves. In the third and in the last week Gamma will start to play a more major.
My main conclusion I can be more relax with the butterfly in the first week of the trade then I initially allowed.
I have decided against putting on extra trades as in additional butterflies. The market needs a little time to settle. November will be soon enough. The remainder OCT Rut trade has integrated into one big position. Today was a good day to recoup some of Fridays losses. Tomorrow this market can jump in any direction, so I very tight with Risk Management, keeping my Greeks under control. Without adjustments my profit zone is @ expiration between 690 - 740. Still 3 weekends to expiry a lot can happen :) Although I heard Paulson is expected to play golf this weekend!
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