Theta Positive - Option Trading

Feb 27th

Still struggling with the butterfly. Based on my statistic I should have been out of the market since a couple of days. I am hitting day 16 right now - way overdue to finish up. The market is not accommodating.

For who, who heard me @ sheridanmentoring - as you can imagine I lost my short term bullish bias I was venting around noon. Till noon all signs were rather positive - the last hour destroyed all that again.

I have three graphs for you. Butterfly 1, butterfly 2 and the combination. In total on a 5 lot I am down $200/300. This including the regrettable expensive upside protection I bought a week ago.

I am convertable with my current position - altough I wish my trade was a bit wider on the down side. But then we already made an ugly move down - so we will see what we get next week.

Feb 25th

Another day of Sit on Hands for the butterfly. I was very tempted to adjust the first butterfly further down when mid day the RUT was down 3%. Did you notice that the RUT was the weakest index by a long stretch.
Very difficult to really pick a direction - I focus on getting the trades as neutral possible (hence the anticipation I am having over my RUT trade)  and monitoring my Achilles heel over trading. So far I am doing really well, I have triggered a limit amount of trades and the quality of those trades are by my objective criteria :) very high.

The chart I have for you is the RUT butterfly which display 4 profit lines - each on day in the future.
So the red line shows my profit for Sunday  evening/Monday morning. As you can clearly see the trade (at present) has a upward bias.

My lines in the sand are clear - and hopefully they will not be triggered.

Feb 24th

Nice bounce back up - Happy that I did not make any adjustment, other then peeling off, on the original butterfly. The alternative would have been taking off one 410-450.

Follow me in what would have been the result. A 5-10-5 would have changed in a 4-8-4 plus a credit spread on the 450-490. That would have changed the original butterfly from a $5000 trade into a 5000 + 4000 as margin for the credit spread trade - total investment 9000.-.
In the bounce back - especially if we move further up the credit spread would be come a liability; needing an adjustment by itself.

For now the trade - looks pretty good.

Feb 23rd

Short post - got to run

Here is the graph - I made one adjustment - I peeled of a 1-2-1 of the first butterfly (410-450-490) to give it less weight in the overall trade. The second fly is still on for a 5-10-5 and nicely centered.

feb 20th

I am going to show you several risk graphs - the numbers may fluctuate a bit as I have copied them during a half hour of trading.

First my current position (reduced to public size).

The then 2nd butterfly

The original butterfly:

The first butterfly with a full (directional adjustment)

It is the last graph I want to spend some time on.

As you can see if I would make a full size adjustment (which i don't) I would make $3100, if the market doesn't move back to the 450 level. Since the original trade was approx a $4500 investment - $3100 return would be greedy. We are looking to make 20% on $4500  - I can still take another $2200 loss on the losing side of this butterfly - before a full directional adjustment would not give me the desired 20%. If I only try to get out break even - I can even wait another $3100.

This knowledge gives me time; time to let the market tell me what we are going to do - plus time to let March expiry to come closer. Par example if end next week we pass 390 in the rut the chance in the remain time that we whipsaw back to the 450 becomes smaller and smaller. So my directional risk for the full adjustment has become smaller by letting time pass.

We are not going to do the adjustment in one big all or nothing step. I will do in 5 small steps. If I do the first step $10 before we cry uncle - then I can do the last one $10 beyond we cry uncle.
I used an theoretical option price calculator to see were the RUT next week must be for me not to have a potential profit in Butterfly 1 after a full adjustment.
Next week Friday - with a RUT on 390 and a Vix on 55 then the 410-450 spread will be price 9.45. So If I peel of the first spread off at 400, the last one comes off @380. 20 point 3 more spread to do - so approx every 7 point I will need to peel of a credit spread.

The market already came down 55 RUT points in 5 (4) trading days - that is very close to 2SD's for the week. Continuation of this down trend is always possible - but statistically not probable. So back to the graph on the top - my current position - allows me to enjoy the weekend - as I am going to do now.

I will spend sometime on the Moneyshow in NY over the weekend - hope to see some familiar faces.

Enjoy your weekend,

 

Feb 20th

Took a lot of load out of the market over the last couple of days. March Iron Condors are closed for a little under 8% profit (including commissions) - not bad in this market. I started April but since it is still early I am under 20% of size as yet.

The butterflies are still in good condition (see graph) - I did closed the extra 490 I bought, based on my questionable upside fear from a couple of days ago. I will account for this lose in the final trade results when we close the trade. I will try to manage the trade back to a 25% profit compensation for the lose on the single 490 call, but that will not be a goal by itself.

As for market direction - it is difficult to see anything else then down right now - but be careful for the bounce if it as violent as in Nov then we can jump 5% in a day.

Feb 18th

Market is coming under expiration spell - one more full day of trading for the indexes.

The Vix was very jittery during the last hour - I am wondering it those were "data errors" or indeed real trades. I saw the vix make 1pnt jump per sec. up and down. The close of the vix removes all the positive "feelings" of the last part of the afternoon.

Technically we would expect a "Kiss goodbye" of the trendline we broke yesterday morning. So a expiration week induced run up to the 805 levels would still maintain the break of the trendline - and would set us up for a great short.

The butterfly had no adventures today - so check yesterday's chart.

As always tomorrrow a new day - new chances to do right and to f&*(& up.

 

Feb 17th

Half way the bottom of the canyon.

Nasty day  - 1.5SD down - high volume - not much upbeat remarks to make.

The butterfly is examining the lower edge of the P/L graph - I find myself in the sad position that after Thursday reversal and early Friday continuation - I add a some upside protection to the fly. Which of course is now quite stinging.

See the effects on the graph - the greeks are still under control - I am waiting till we pass the BE points before considering an additional butterfly on the 360-400-440. This being expiration week - we normally would anticipate a little upward movement later in the week. We will see

Feb 12th

Living on the edge of the cliff.

Look at the TLT, VIX and trading volume, they are all telling their story (at least for now) - up, up and away. Look at intra day volume picking up in good proportions after 3pm. 7 Point Vix drop from intra day to close - 3 points from close to close.

The butterfly is jolly. At times the mark of the butterfly was showing a 10% profit. I had an order in to pocket that 10% - they however never took it. 10% guaranteed within 24hours or the chance of 25% in 11 days - I take the guarantee, especially next week enough chances to reset and reenter.

My March Iron condor is in good shape - the only sad thing is in the morning down drarft I bought a April 370 put - that seems to be overdone right now. The biggest danger is however closing it too early for a lose and needing it again next week. So now I will stick to it - might sell tomorrow a March 370 put against it, allowing the market to pay part of my insurance.

Feb 11th

I entered the March butterfly around 11:30AM - I wasn't hard pressed to get filled today, although I would like to get filled before Friday morning - taking into consideration the long weekend we are getting.

I entered the order @ $9.45 and after a couple of minutes had a good fill - always a good feeling to start with a good fill.

I have hold off on buying an extra call to half the original deltas from approx 16 to the 5-8 region. I have alerts in to warning me if the RUT moves over today's high. That will trigger me to buy some extra calls to reduce the overall deltas.