I'm now flat and have contingent orders in place to help me stay in the game, let's see what goes on Tomorrow. I also plan on adding the OCT trades Tomorrow.
Previous Posting:Wednesday, September 9, 2009
09/09 RUT Iron Butterfly
Got tangled up in the price action Today, it was the result of not having at least two levels of contingent orders. After RUT hit my first up-side adjustment, I planned to act mannually and decided on the fly to roll one of the short 580Calls, the execution was bad and ended up taking a toll on my P&L.. On these smaller trades execution slippage on spread trades can be a big hit..
I'm now flat and have contingent orders in place to help me stay in the game, let's see what goes on Tomorrow. I also plan on adding the OCT trades Tomorrow.
Previous Posting:
I'm now flat and have contingent orders in place to help me stay in the game, let's see what goes on Tomorrow. I also plan on adding the OCT trades Tomorrow.
Previous Posting:
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3 comments:
Hi Gustavo,
I find the way I learn most is from my mistakes - it makes us better traders in the long term!!
I think we beat ourselves up because we don't do everything we should - I think its all part of the learning process. The main thing is you won't make that mistake again.
Question: You said you have two levels of contingent orders - why 2 - incase the first doesn't execute or are these for different scenarios or what are they?
Thank you! You are certainly right. After all, this is the first time I trade the RUT Iron Butterfly, mistakes are expected. I now have a few ideas on what might be different between the RUT vs the MNX and how to trade it next month.
About your question, the two levels are complimentary to each other. If you look on the risk profile chart, you'll notice that I usually have two vertical lines above and bellow the last price.
So, what I do is look on TOS what would be the way to adjust if we hit the first level (i.e. cut deltas in 1/2). Then, with that adjustment in place, where would I need to do anything else if the market keeps moving in the same direction and that will be my second level.
Usually, this will get me covered for a strong day, specially because I try to keep the first line of defense within 1 st. deviation from current price, the second line will be about 1.5 st. deviation. Considering a large move to be around 2+ st. deviations, after the second adjustment the position should be running pretty flat.
BTW, Today it wasn't the case for this RUT position because on the up-side I'll be flat deltas after the first adjustment, so there is no need to add anything after that.
NOTE: I always review the position in the last hour of trading, to make sure the automatic adjustment doesn't need to be replaced with something else. I.e. a vertical roll, or a new butterfly.
Hope this helps
Cheers!
Gustavo
That's great help Gustavo,
Many Thanks
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