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.