April 18th

I will make up for not posting a couple of days. A lot of graphs and some thoughts.

Above is the current position with the two butterflies. Greeks under control, we are making some money. One week - one SD move brings us between 450 and 510. 450 would be super, 510 not.
The SD lines you see on the graph are set on 1 week before May expiry - I am aware that 1sd move up from here part of the move is not covered by my profit area (512-531). For now I not worried but I am very mindful.

The 2nd graph shows the first butterfly - displayed with 4 plot lines one for every 2 day - the P/L lines cover the time till next weekend. You can clearly see that we are on the edge of loosing our positive theta. We're down $747 including the extra 500 call. If the rut moves further up the red 4/26 line is below today lines presenting us with a negative theta.

Third graph is the first butterfly with what I call the ultimate adjustment - removing the loosing side and closing of the insurance. This show that I still have time to "ignore" the problem as this directional trade stands to make $1783 which is 23% of my original investment. I exchange future profits for time/risk. The later I make the ultimate adjustment, the better. The earlier I make it in small steps the better. Both statements are true - I weight my final decision based on my overall rut position (and a little bit on market opinion).

The last graph doesn't need much clarification - it is the last butterfly I added to the position. It is nicely up 23% and is carrying proudly the profits for the trade.

Sit on Hands can be very difficult at times - I was tempted to make a first adjustment Friday afternoon in the first butterfly - fighting that urge has as much to do with trading skills as it has to do with psychology.

I leave you with a review on Jeff Augen last book 'Trading Options at Expiration'. As great a book as his other (see my bookstore on the right).This book focuses completely on the last two days of the expiration cycle. I don't recommend the book for novice traders - first learn the basic - but if you want some 'day trading' execitment and want to use miss priced options on expiration day, I recommend this book.
Yesterday, I applied lessons learned on AAPL by buying directly in the open ATM 120 Straddle - Gamma scalping - I still need to optimalize the way I aproach this trade - I only captured 1/3 of the possible profit. But the book is paid for 15times so that is a good return on investment.

Comments

[Bill]

Ernst,

Great post. You are really a master at trading the fly. I only wish I had as good a handle on it as you. Great work!

Bill