Monday, June 22, 2009
06/22 SPX Iron Butterfly
Added this position on my paper account. I know it is past the optimum time to enter the Iron Butterflies, I want to test my hand in managing it on an Index with a larger size position.
06/22 Trading styles within the income trading strategies
There are several different trading styles when it comes to trading income strategies with options:
0) Pray and hope: no guidelines, put a large condor and pray and hope price won't bust your trading account. I've done that in my early stages of options trading, scary as it seems, it works a lot of times, but then and again you come accross an October, and you can give away all your trading capital + emotional strenght to come back the next month.
1) So far I have taken the guideline-driven approach, where I would make adjustment to my trades at pre-determined levels using criteria such as the position in relation to the break-even levels at expiration, the delta of short strikes, etc. For this approach, you're not expecting profitability every month, you expect to be profitable over one year. You are very likely to make more than 15% per year.
2) Incremental approach: When I started trading the Iron Butterflies with Dan Harvey's guidelines, a new style appeared: make incremental adjustments based on the T+1 line and taking into account current P&L levels. This is a far more active approach, however, if done properly, it ensures no big draw-downs and even though you adjust more often, there is a plenty of money in the iron butterflies to make sure you can still make your target. You expect to make money every month, the market may beat you out of your cash in one or two months in a year, but it won't be twice as much what you usually make when you win.
What you like best depends on how you are treating your money. I agree with Dan's analogy between: dinner & movie vs. mortage payment. If you're trading for extra cash, and you don't really depend on that cash for a living, taking a guideline-driven approach makes more sense. If you are trading for a living, then it makes sense to protect your capital and stay more active in the trades to make sure you defend your capital against large price swings.
Today provided me a clear distinction: Both the SPY Double Diagonal and RUT 30-Day condor gave back about 3% of profit + the weekend time decay with Today's action. The Iron Butterfly gave back nothing, in fact P&L actually improved by 1%, which means it kept some of the money it made over the weekend.
Needless to say, I'm leaning more towards the active approach. Please realize, I'm not day-trading those!! I have pre-defined contingent orders to bring the deltas back in line if they start to go crazy with me. I also have contingent orders on the guideline-driven trades.
Today I started an SPX Iron Butterfly. It was done on paper trading because of its size and because it is my first shot at managing an index iron butterfly. I have a feeling they are easier to deal with because of their low gamma. We'll see.
Cheers!
Gustavo
0) Pray and hope: no guidelines, put a large condor and pray and hope price won't bust your trading account. I've done that in my early stages of options trading, scary as it seems, it works a lot of times, but then and again you come accross an October, and you can give away all your trading capital + emotional strenght to come back the next month.
1) So far I have taken the guideline-driven approach, where I would make adjustment to my trades at pre-determined levels using criteria such as the position in relation to the break-even levels at expiration, the delta of short strikes, etc. For this approach, you're not expecting profitability every month, you expect to be profitable over one year. You are very likely to make more than 15% per year.
2) Incremental approach: When I started trading the Iron Butterflies with Dan Harvey's guidelines, a new style appeared: make incremental adjustments based on the T+1 line and taking into account current P&L levels. This is a far more active approach, however, if done properly, it ensures no big draw-downs and even though you adjust more often, there is a plenty of money in the iron butterflies to make sure you can still make your target. You expect to make money every month, the market may beat you out of your cash in one or two months in a year, but it won't be twice as much what you usually make when you win.
What you like best depends on how you are treating your money. I agree with Dan's analogy between: dinner & movie vs. mortage payment. If you're trading for extra cash, and you don't really depend on that cash for a living, taking a guideline-driven approach makes more sense. If you are trading for a living, then it makes sense to protect your capital and stay more active in the trades to make sure you defend your capital against large price swings.
Today provided me a clear distinction: Both the SPY Double Diagonal and RUT 30-Day condor gave back about 3% of profit + the weekend time decay with Today's action. The Iron Butterfly gave back nothing, in fact P&L actually improved by 1%, which means it kept some of the money it made over the weekend.
Needless to say, I'm leaning more towards the active approach. Please realize, I'm not day-trading those!! I have pre-defined contingent orders to bring the deltas back in line if they start to go crazy with me. I also have contingent orders on the guideline-driven trades.
Today I started an SPX Iron Butterfly. It was done on paper trading because of its size and because it is my first shot at managing an index iron butterfly. I have a feeling they are easier to deal with because of their low gamma. We'll see.
Cheers!
Gustavo
06/22 MNX Iron Butterfly
The strongest of the 3! The position took a 1.5 st. deviation beating, it is a fairly new position, with less than 1 week of life. Look at the P&L, it is almost unchanged, in fact, we gained a few bucks since Friday, despite this big drop.
I have adjusted the trade twice:
1) I used a contingent order to sell the Long AUG Call I had, see the pre-opening game plan.
2) At closing, I cut the deltas further and brought it down to 15, my theta is 25, so I am at more than 1:1 ratio.
I have adjusted the trade twice:
1) I used a contingent order to sell the Long AUG Call I had, see the pre-opening game plan.
2) At closing, I cut the deltas further and brought it down to 15, my theta is 25, so I am at more than 1:1 ratio.
06/22 RUT 30-Day Condor
RUT gave back some of its acquired profits, we're about 1 st. deviation from the 1st hedging point at 480, I'll stay on the trade. If we go down my plan is to exit the CALL spreads and hedge the position at 480.
06/22 SPY Double Diagonal
This is the 3rd week on the trade, and the question I ask myself is: do I want to stay here? We're approaching the level where the adjustment point is no more than 1 st. deviation in the volatility cone, from that point on, adjusting is simply part of the expected law of probabilities.
I'm looking for a small retracement Tomorrow so I can take this trade off the table. If we open crashing down, then I might stay for the ride and take my chances adjusting, otherwise, 5% is good to me.
I'm looking for a small retracement Tomorrow so I can take this trade off the table. If we open crashing down, then I might stay for the ride and take my chances adjusting, otherwise, 5% is good to me.
06/22 Pre-opening plan
1) MNX Iron Butterfly: I have an order to sell the long call if we go to 143.50. This will bring deltas back in check and release a some more theta.
2) RUT 30-Day Condor: I have an order to cut deltas in 1/2 if we reach 480. This is per trading plan and I don't expect RUT to go there Today as it would be over 2 st. deviation if it did. Provided we don't have any economic news, I'm not too concerned, but the contingent order is there just in case.
3) SPY Double Diagonal: I only have price alerts if we move 1 st. deviation down Today. I'll look and evaluate if a contingent order is needed if the alert is triggered.
2) RUT 30-Day Condor: I have an order to cut deltas in 1/2 if we reach 480. This is per trading plan and I don't expect RUT to go there Today as it would be over 2 st. deviation if it did. Provided we don't have any economic news, I'm not too concerned, but the contingent order is there just in case.
3) SPY Double Diagonal: I only have price alerts if we move 1 st. deviation down Today. I'll look and evaluate if a contingent order is needed if the alert is triggered.
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