Theta Positive - Option Trading

The Start of the July Butterfly

We're back in the butterfly game.

At times I get to answer if the fly is only trade I do - it isn't - at any given time I have over 30 live theta positive trades spread over all the managed accounts. I have chosen to blog on the butterfly since it such a great teaching subject to explain what we main with non - directional - defined risk option trading.

Later this week I will post a What work in June/What didn't kind of blog to keep you posted and to give you some fresh ideas for July.

At the bottom you will find the butterfly graph. First I want to show you a more experimental trade I have going. A multi-month MNX Double Diagonal. Normally we manage the Double Diagonal by measuring the max possible profit on the low end of the curve and we 'll close the trade when we reached 80% of that number. In this multi-month MNX trade I will not close the trade but roll the short to the next month - and hope to establish a situation were on both side of the trade I can reduce risk - by selling closer to the back month longs. We will see how it works out.
I entered the trade on Jun 3rd. The VXN has come down - reducing the trade potentional for the first month. So the "big profit" will have to come from attractive roles. If you move time forward in the analyze page you will see we stay positive theta @ this price level till the 4th of July weekend.
I have a couple of rules going forward - I will role when the front month premium is under 20ct or when MNX get to 161 or 131. Otherwise we will stick with the trade till the Theta turns (nearly) negative.
I will not blog on a daily basis on the MNX trade - but will keep you posted as we go forward.

And a word from the sponsors - thank you all for visiting my Bookstore @ times and for clicking so often on the Google provided Ad's. All in all it is adding up to a couple of Pizza's and a beer a month.

BTW if you are not a Sheridan Trader but want to join us in a Free Webex visit Dan Sheridan

June 11th

I did not yet enter a butterfly - I tried to sell it at the top of the market - but might have entered the order a little to cheap. Tomorrow an other day. I am not too hurried since my RUT Iron Condor for July is already hanging quite short delta's adding a butterfly while the market still trend upwards only adds to the problem.

Today I closed parts of my TLT short position. I had an amazing run in the tlt - definitely a top performer - I would be surprised if we don't get a little bounce here - hence the close of parts of the position. I am still short some naked July 99 calls. My tlt short stock will get assigned and closed out next week. By then I will nearly flat and very much willing to re-enter when the charts show a entry.

That's is for today - hope tomorrow I can share about a new fly.

June 10th

I closed the second fly for this month - taking into account commisions we gain $470 or 8% (based on a five lot).

With expiration next week - I felt it better to close and concentrate on bringing a very good month home.

There is definitely an argument to be held for staying the course a bit longer - the greeks were still under control - but one does what one has to do.

I am trying to get into my first July butterfly - you will be the first to hear it - via the blog and twitter.

June 9th

I am writing this early morning June 10th - market up strongly - My first contemplation was to check the bankruptcy register to find the good news. It seems nowadays that if an icon falls that the market moves up. Sorry  too early - jokes turn lame.

The butterfly is in alright condition - I might just pull it of today - I come away with a small profit even taken commission into account. Always better then a scratch on the face.

The TOS analyze page show a 600+ profit - my administration has it a bit lower  I would my current profit is just of $300 in a 5 lot.

June 8th

A strange day - I was mentally getting ready for a little sell-off - but around noon time I saw the VIX changing in characteristics. The vix seemed to have topped out. This kept me from swinging to much to the down side.

The butterfly is still intact - although I made another upside adjustment later in the afternoon. This month you get to clearly see how versatile a butterfly trade is and how long you can stick with it.

If the market whipsaws back to the downside expect me to quickly buy up to three 490 puts to protect the build up value in the 450-490 spread.

As you might remember we already closed one butterfly for June - so currently we are trading the second fly. I am very careful not to have this fly overtake the result of the other one (in the negative sense). June is lining up as great month - Overall my main focus for the rest of June is preserving what I gained (and already closed).

June 7th

Not much wisdom to share - the trade is doing well enough. A break of Friday's high would force me to do another upside adjustment - otherwise I will stay as it is at least till other couple of days.

See the theta chart - in a 4 2-daily lines. You can see that my theta is coming down rapidly - this week @ this point my theta will go below zero.

So we have two adjustment setup - going up and stay here.
Going down is profitable - we will assess when we see the force of a potential down move.

June 3rd

No action on the butterfly -

Yesterday some hit on my risk free box for 39.96 - so I realized max profit on one debit spread 450/490.
Still waiting for the 3 now naked short put 450 to come under their "purchase" credit of 85ct (see the ratio spread). I have an order in to close those puts for 30ct. As I have another order in to close the remainder of the butterfly now a 3-6-3 at my 20% profit level - to get there today we will need to see RUT 500.

If we break out to the upside I will need to close a credit spread 490/530 since the deltas of the butterfly are running away from my comfort zone.

Jun 2nd

Again some little adjustments to the butterfly - I closed the extra 540 call and sold a vertical 560/570.

We are in good shape - for a minor retrace of this up move. If the retrace doesn't materialize and instead we get an upmove then I will peel off again a 490/530 spread (and regret having sold the 560/570).

Jun 1st

June 1st was a difficult day for non-directional traders - big part of the move happened overnight, no retracement to Friday's close. So if your position was hanging in the wrong direction damage was done @ 9.30AM.

This happened to me in the butterfly - luckily enough my portfolio deltas going into the weekend were very moderate short -100D and over 1200T, plus short vega's. So it was not a disaster.

The butterfly is currently underwater - I could not - as by my trade rules, get the trade off for 15% if it retraces that profit level after hitting 20%. I had to make a decision take it of for a very small loss or fight it. I choose the last for the reason that we still have three more weeks till expiry time enough to let theta do its work.

I entered three adjustments - a vertical spread 490-530 to moderate the fly's delta's and a ratio spread 450/490 to move part of the risk to a lower point on the graph. (see my May post on Ratio spreads). Finally I bought and extra 540 call to smooth the deltas a bit more.

This morning TOS doesn't show the right P/L - I spent quite some time figuring out my error - but it seems it is the software - we will need to see what shows after the open.

I closed my large Iron Condor for profit of 8% - in a general thought of reducing risk and take banking some decent profit. So far June is lining up to be a very good month.

May 29th

That was a great move the last 15' of Friday - and it seems that market has more in store for us.
GM in bankruptcy seems to be good news - who would have ever guessed.

MY Theta Positive position are largely getting to short delta's - something will have to give. If we break the overnight high in the futures that is definitely the line in the sand.
My JUN RUT IC is/was in great condition - will need to see how much damage this up move is doing to it. Otherwise I might just pull it off.

Friday I managed to pull 20% of my butterfly for 20% profit.

Be careful when you make you upside adjustment not to open the barn door to the down side. Make the upside adjustments in small steps that way you won't get hurt if this market turns around.