Thursday, January 21, 2010

01/21 MNX Iron Butterfly

By far the best position in my portfolio, this trade is hanging nicely despite the wide movements in the past two days. The trade fixed itself Today by picking up another long Put, we’re at the break-even level and I’m planning to keep managing the position.



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3 comments:

Anonymous said...

Hi Gustavo,

When cutting Deltas, what is your criteria for either buying a Vertical in the same expiration month or buying a single Put or Call in the next month out? Is this to do with if the underlying is either trending or whipping?

January 22, 2010 at 1:34 AM
Gustavo's Trades said...

Hi there, I usually start by buying a long Put or Call in the back month. In this case, I'm trading the FEB Iron Butterfly, so I'll buy MAR contracts, single PUTs or Calls.

They are more expensive than a vertical debit spread, and even more expensive than a long in the same month. However, they are "lighter" in terms of negative theta (compared to the FEB longs) and deliver a much better punch in terms of gamma protection (compared to the debit spread).

This month, as my short contracts are getting into the high delta zone. AKA Delta Hogs, I'm starting to roll them out, that is another way to control the delta.

Hope that helps, I have been thinking about writing an e-book on this trade, as it is the best strategy I traded thus far.

Gustavo

January 22, 2010 at 9:07 PM
Anonymous said...

Great!!
Thanks Gustavo - Gamma protection is something I have always ignored - Mark Wolfinger talks lots about Gamma but I always seem not to take this Greek into consideration enough! The learning process continues!
Any chance you could elaborate on the "2.0 version of Dan Harvey's strategy" you hinted on in your NDX trade?

January 23, 2010 at 1:29 AM

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