Moving the November Butterflies Forward and Adding Verticals

     Sorry for not posting in a while, I have been really busy with school. Anyway, my November position was doing fine until the sudden rise of the market in the past few days. By yesterday, my position had positive Vega, negative Theta and a high Gamma value as well. Since I wanted to fight the market and the overall position was still okay, I decided to move my butterflies up to 1150. Before the adjustment, the risk profile looks like this:

After I moved the butterflies up, the position had a a negative Vega value, a positive Theta value and a lower Gamma value like an ideal position should have. The position now looks like this:

Today, after the market rose another 0.5%, the market was outside of the tent of the butterfly and the Delta value was -78. The rule for negative Delta outside of the tent is -50 so I added two verticals at 1160 and 1140 to make my Delta -57 which is close to that of the rule. The Theta and the Vega of the position increased (Theta became more positive and Vega became more negative) and the position now has a nice t + 1 line. The position with the verticals added looks like this:

Added Verticals to November Position

       On Monday, I had to adjust my position because of too much negative Delta. I put on two verticals at 1120 (buy) and 1130 (sell) and was able to increase the Delta value to above -50, following the rules of the M3. As of today, I am at a profit of $1,061 and my Greeks are: Delta is -24.37, Gamma is only -0.24, Theta is 148.2 and Vega is -318. The position is 30 days until expiration so I am in no hurry to take the position out, especially since my t + 0 line have a nice, flat line.

This is what the position looked like after the verticals were added:

This is the risk profile of the graph today:

November Position Update

     Late last week, I moved my butterflies from 1,070 up to 1,110 where the position was originally initiated. This is because of the rapid move back up from 1070's to where it is now, at 1,164. Also, my Greeks were a bit off, meaning my Vega had gone positive at about 164. My Theta was also at the edge of going negative at only 4. Overall, it was a risky position. As of today, my Greeks are all within their limits and the position if up $476. The current risk profile graph looks like this:

Starting and Adjusting of the November Position

       The past few days have been extremely busy for me so I apologize for not updating. Last Friday, I put on my November position. The butterflies were placed at 1,110, about 30 points below the market position of 1138 at that time, like I normally do. The one thing I had to do differently while putting on the position was buying 16 butterflies instead of 10. I was forced to do this because if I had just put on the 10 butterflies like usual, the call I would have had to buy in order to offset the Delta would have been closer to the money than I would have been comfortable with.

       On Monday, since the market dropped so substantially, I had to move my butterflies back. The overall value of the Delta was 55 and since the rule is to sustain it under 50 I had to adjust it. The position as of Monday night after the adjustment is at 7.34 Delta, 96 Theta (slight decrease in the Theta after adjusting) and -356 Vega which became largely more positive. This is not something I am worried about since it will become more negative as time progresses. The risk profile graph looks like this:

         I did not adjust the position the rest of the week since there were no there drastic changes. The positions current Greeks are: -7 Delta, 123 Theta and -391 Vega. Currently, I am only down about $70 as opposed to being down about $700 on Tuesday after the market was down again. What is interesting is that if I hadn't adjusted my position at all on Monday, I would have been up over a thousand dollars. Of course this is unrealistic since I will always adjust my position based on the given rules. The position as of today looks like this:

       

Closing of September Position

          After such a fluctuating market, I decided that it would be best to take the position out at a profit of $1,821. The position was taken off on Tuesday the eight. At that point the Delta was extremely negative (-151) and it didn't make sense for me to keep the position trading, especially because the volatility isn't going to drop until Wednesday. This is because the Federal Reserve is meeting and deciding if they want to raise interest rates. Since there is an event coming  up the implied volatility is and continues to be high until after the event is over and either drops dramatically or stays where it is.

          I am looking to put on my October position tomorrow even though it is only 38 days until expiration. I believe it will be a helpful experience for me in order to learn how the position reacts in a higher gamma environment.

This is how the end position looked like when I removed it.

What a Week!

     Wow. What a roller coaster this past week has been. I apologize for not keeping the blog updated on the position but my first adjustment was yesterday. I adjusted the position because the gamma trend behind and in front of the butterfly was not too good.

As you can see, even though the market jumped around so much, I am still not down too much. A lot of that is thanks to the position being placed 56 days to expiration. This gives the trade time to develop and is not as effected by the market being so fickle as a trade that was put on recently right before the market tanked. As I have learned, the market has not fallen so much in the past two decades and while I would have preferred an easy trade, being affected by this with the rest of the world has been a wonderful learning experience for me. 

This is what my position looked after adjusting it yesterday. I moved my five 1160 butterflies back to 1120 and moved my call back to 1090 to increase my Delta value. My dad taught me that if you have to adjust a position, you should never change the signs of the Delta and since I started with positive Delta, I had to keep it positive Delta. The adjustment brought more positive Theta and more negative Vega to create an overall balanced position. Today, my current position is up $1,111 (hopefully that means luck) and my Greeks are all within their limits. I will keep the blog posted throughout the school year as best I can and look forward to sharing my position with you in the near future.

Another Position Update

      After the market tanked on Friday, I had to adjust my position again. I did this by moving half of my butterflies from 1200 to 1180. Currently, I am up over a thousand dollars but since my t + 0 line is still fine I am going to stay in the position.

   

September Position Update

     Over the weekend, after the market rose on Friday I put on a vertical of the strike prices 1210 and 1180. Unfortunately, after I put it on, the market fell half a percent on Monday. By putting on the vertical when the Delta was only -35 inside the butterfly was technically breaking the rule but I didn't like the way my t + 0 line was drooping into the curve. If the market continued to rise as it did last week, I would be facing losses so I decided it was best to buy it since the backside of the butterfly was strong anyway. I was not able to record the Greeks from when I put on the position but the current values are: Delta is -36, Theta is 98, Vega is -453.

Start of September Position

       On Friday, I put on my September position. Generally, I like to wait until the market moves significantly up or down before I put the position on. This causes the butterflies to have better pricing. Since the market ended at 1,225 on Friday, I placed my butterflies at 1,200. Like always, the butterfly has 50 point wide wingspan so the wing are located at 1,250 and 1,150. The call I put on in order to start the position with -5 Delta was an 1,140 call. My Theta is 36 and my Vega is -342.

Closing the Position

       After the markets fell yesterday, they entered the tent of my butterfly giving me the most profit. It has been brought to my attention that when I last updated the position, I did not use the proper rules of the M3 and the $4,580 can be regarded as a fluke since I would have only made money if the market had gone down which it did. The rule I did not follow was to keep my t + 0 line flat so that no matter which way the market goes there will be no severe losses. Since I did not adjust it in this manner and only fixed my Delta value, the t + 0 and risk profile curved down in front of the tent of the butterfly. I apologize for this mistake but am still satisfied with the return. I will be putting on the September position on Monday.

    After the markets rallied up over the past few days, I had to move my butterflies forward. Not knowing if I have stated it before, I move my butterflies forward when the market is ten points over my upper wing. Before I moved them, I had ten 1210 butterflies but the market closed at 1273 which is more than ten points above 1260 (50 point wide wingspans). Before I moved them, my Theta was negative and my Vega was positive but was fixed when I adjusted the position. My current Greek values are Delta: -95, Theta: 157, Vega: -639, Gamma: 0.13. I am currently up $610.

 

August M3 Update

    After the rise in the market on Friday to 1,252 my position still has good Greek values and the market falls just outside of the upper wing of my butterfly. Currently, I am down $540 but since all my Greeks are within the limit I have set for them, I don't need to adjust the position. Even though I stated that I was not going to update the blog if I didn't change the position in the first post, I decided it was better if i posted constant updates.

Adjustment after Greece Declines Financial Aid

     After the 1% drop in the markets yesterday caused by Greece declining the financial offers made by the European countries, I adjusted my position. The Gamma trend was very risky since my butterfly was in front of the market and my Delta value went over my limit of 50 as well.

     Once I moved my butterfly back from 1250 to 1210, the value of my Greeks changed as well. The Delta of the position went from 60 to 7 (a much more comfortable level). The Theta decreased, but will rise steadily throughout the course of the trade so its nothing to worry about. The Vega of the position became less negative but like the Theta, the position will continue to accumulate more negative Vega. The Gamma also showed a decrease from -1.9 to -0.4 so the Gamma trend is less of a concern. The t + 0 line is now flat and and the market is currently in the upper part of my butterfly.

First Update for the August M3

      Today, there was a huge drop in the Russell 2000 underlying index. Beginning at 1,269 when it first opened (last close was at 1,279) it crashed another 20 points and closed today at 1,246. Because of such a delcline, the volatility of the index was up about 25% causing my position to suffer from my negative Vega. Luckily, before I put my position on for the August trade, I noticed a steadily rising market and I had a feeling it was going to fall soon. Knowing this, I placed my butterfly at 1,250 rather than 1,260 to have extra support in the back, which is crucial.

        When I checked the position, I saw that all my Greeks were within limit and was only down $340. When I saw the risk profile, I noticed that my t + 0 line was flatter then I thought it would be. I have attached a picture of it below.

August M3

       Yesterday, I put on my simulated August M3 trade. For those of you who don't know what an M3 trade is, it is a strategy that consists of buying 20 put butterflies hedged with a long call. Generally, you put on 20 butteryflies but as long as the ration 20:1 is consistent, you could put on as many as you would like. The butterflies are placed 20-30 points below the current market position with a 50 point wing span. I like to buy a call that has enough Delta to bring the overall Delta value to -5 but if not I would buy a lesser Delta call and add verticals, like I did with the August M3. I prefer closing the position when it reaches 21-17 days until expiration because of the high Gamma trend but I can also close it if there is a high profit or loss.  Again, all credit for this strategy goes to John Locke and I appreciate that he is willing to share his strategy with the rest of the world.

       Below are the current Greeks and risk profile graph of the position. As you can see, the t + 0 line is flat, which is something I want to maintain throughout the trade. I will be posting any updates of the position when I add verticals, move the butterfly or close the position due to high profit or loss.

My Options Science Research Project

         Here is my science research project which I presented at the annual Virginia Junior Acadamy of Science this year. The project is mainly focused around the importance of option Greeks when trading an option position. It is titled The Effect of Dynamic Controll of Stock Index Option Greeks on the Profitability of an Option Position. Even though I didn't win any award, I was thrilled at the opportunity to spread the knowledge of option Greeks. Hope you enjoy it!

Introductory First Post

       
             Hello! My name is Prachi and I am a fourteen year old living in Virginia. I have been learning about options for two years and I have grown to love it. I even used options when conducting my science research project during the school year. If anyone is interested in that, I will have it uploaded on the blog as well. Everything I write or share on this blog is credited to John Locke since I am using his option strategy (M3). If anyone wants to visit his website or blog the link is as follows: https://www.lockeinyoursuccess.com/blog/. It has lots of outstanding information on options and option Greeks as well as his other strategies.