Tuesday, September 1, 2009

09/01 RUT Iron Butterfly

The contingent orders kept the trade under control, but then again, the Volatility increased by far too much and this took a good chunk of the profits out of the trade. If we find some stabilization in the next few days, the P&L should recover, specially because the theta is really good at this price level.
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Anonymous said...


watch the short vegas - you could get crushed again if the markets move lower again?

Gustavo's Trades said...

That's true!

One way to avoid it is by buying a calendar as one of the down-side adjustments.

Also, the contingent orders I have are for long OCT PUTs, so they will also help with the vega exposure.

Gustavo's Trades said...

Another thing to notice is that since the core position is all on the same month, eventually the Vega has to go to zero. I think this might help mitigate the vega risk.

That won't be the case if I start adding a calendar, another reason why I've been keeping it simple with buying longs and doing vertical rolls.

Anonymous said...

Hi Gustavo,

Great analysis as always! It always gets me thinking more what I am doing and where I can improve!

Many Thanks.

Gustavo's Trades said...

You're very welcome! That's the goal: to help as many people as possible as we track along this learning curve.