Thursday, September 3, 2009

09/03 RUT Iron Butterfly

I did a butterfly roll to move the remaining 590 Puts, it didn't change my deltas, but added theta and got rid of potentially problematic short 590s. By the end of the day I saw the deltas flipping to the down-side and sold the OCT 470P I had purchased Yesterday. The 470 put was an impulse buy, because if it my P&L didn't quite recover to previous levels.

On the up-side, the theta is huge right now, about 4% per day! That's awesome! I'm really hopping for a quiet day Tomorrow.
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Anonymous said...

Hi Gustavo,

You talk about doing a Butterfly Roll - what exactly is that?

Many Thanks

Anonymous said...

Hi Gustavo,

Please could you explain how you actually place your contingency orders in TOS to cut your deltas?


Gustavo's Trades said...

Hi there, a contingent order is what TOS calls conditional orders, if you log in to TOS web site, you can go to the support tab and search conditional orders, you'll see a few videos where they explain how to create those orders in TOS.

I mainly do it based on what they teach, a few things I use when I set up my orders are:

1) Time trigger: I always have it set to trigger 30 Min. after the market opens, the last thing I want is to run a contingent order as soon as the market opens, the prices are out of wack and you can get a horrible order. For calendars, my trigger is to run the order 30 min. prior to the market closing, this because I don't want to adjust a calendar unless we're closing outside my break-evens.

2) I usually use MID +or- something for the price, if I'm buying something on the MNX for instance, I'll use Mid +0.2 or +0.04, if I'm selling, I'll subtract from the mid.

If I have some time Today I'll post a few screenshots from contingent orders I had triggered Today on MNX.


Gustavo's Trades said...

Butterfly Roll: Nothing more than using a butterfly order to move some short strikes to another position. In this particular example, I moved the Short 590 PUTs to 560Puts by doing a butterfly roll, here is what it looked like:

Buy 2x 590 Puts
Sell 4x 560 Puts
Buy 2x 530 Puts

This will effectively close my short 590s and open new shorts at 560. Notice it increase the ammount of short contracts you end up on the trade, so you need to be careful not to to go overboard with these.. I did it in the past and got a really hot potatoe in my hands..

In this particular trade, I already had 3 long 560Puts, so after the roll I ended up with only one short 560Put to deal with.

Hope this helps, if not, take a look at the previous risk charts, you'll see the contracts there during the before and after.