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Cash-and-sweep was $2514.06
This is compared to the previous weeks C&S numbers, which was 2259.58. I only opened one trade for this week, and it looks like my beta weight has been coming along in the right direction. With my beta number on target, the trades I have on make my profit-loss look awful. No break-even points placed around the 1std deviation moves for SPY.
Guess what we’re talking about today?! Iron butterfly vs Iron condor trades
. We need to go thru the different ways on how to recgonize and build a good Iron butterfly.
Week 36 9/3-9/7
Day trade was placed
Trade Closed Date
Amount of contracts
Sept 6, 2018
This was the one and only opening trade for the week. I placed this trade on 9/6 hoping to ride the wave up, as the chart looked like it was continuing a nice run. I got lucky and got in at the right time as it reached its highest price, $34.This $34 stock price occurred 7 days after the trade was built.
Date opened trade
bp effect thinkorswim
Day of closed trade
September 7th, 2018
Calendar spread (selling the 80-strike Sept 21st and buying the 80-strike October 19th)
Win @ 1.75 (9/7/18)
Iron condor(-184/185 calls, -174/173 puts)
Win @.12 (9/6/18)
Built this trade and confirmed it during week 34 At the time, the Q’s seemed to be trading in a consistent pattern. Trading within a $10 range, right between 187 and 175.
The put side consisted of selling the 174-strike puts and buying the 173-strike puts. Built and sold these iron condors31 per spread. Bought these iron condors back at12 per iron condor.
Originally made on 8/7. The calendar spread was made at the 80-strike price. If you remember correctly, we sell the front month contract while buying the back month contract at the same strike price. Traded this spread for$1.30, while selling it back to the market for $1.75. My thinking was that I needed some bullish exposure, and it looked like $NKE was on the rise up. It landed right at 80 towards the end of expiration with the front month contract.
The iron butterfly: How do we build it?
What does an iron butterfly trade look like? Well, you can consider an iron butterfly a straddle with protection wings on either side. First, you sell:
1 ATM Put(same strike)
1 ATM Call(same strike)
1 out-the-money call
1 out-the-money put(different strike)
The two inside or ATM strikes, will be your straddle strikes, while the OTM Put and Call will be the protection wings. The P/L diagram looks something like this:
(Strike price of ATM put) - (credit received)
Strike price of ATM call plus premium received
So, what's the use of these trades?
We want the stock to stay range-bound. Maybe a trader believes the stock is going to stay within a 2-point range, and the stock has been having high volatility with option pricing.
With believing the stock may stay range-bound at a certain price, a trader may want to use as little capital as possible for a trade, but also wanting to add a delta neutral position. The iron butterfly can be considered less capital intensive than the iron condor, but not always.
Make sure to use this strategy during high volatile market times When deciding to use this strategy, make sure the stock has very high volatility.
This type of strategy is similar to an iron condor strategy, but it is NOT the same
Max profit potential
ROC( Return on capital)
Buying Power Needed
Of the five bullet points above, the credit received, BP effect, winning percentages are something worth discussing.
The premium taken in with the iron butterfly options
are higher than iron condors. What's the reason for this? It’s based off the mechanics of the trade. The iron fly is a straddle with protection wings, usually straddles take in higher credits, however, with lower win rates. Compared to the iron condor, which is two credit spreads both below and above the stock price, making the trader take in a lower credit, but have a higher chance of success.
Buying Power Effect
The cost to hold the trade is small, although you do have a potential to lose more with iron butterflies. Depending upon the strikes chosen by the trader, these can give the trade a better benefit of low holding cost. I've been fooled before in thinking that the cost of the trade is the max loss. This is not true.
This might help you consider which trade to use, either the iron fly or iron condor. The iron fly essentially looks like a more profitable trade, the problem is that it has less success. What's the reasoning behind this? Compared to iron condors, iron butterflies have a tighter range they have to stay in.
Iron Butterfly options adjustments
Just like the other strategies with both a call and put side, we don’t close out of the challenged side. We close out of the uncontested side, and roll up the call or puts for more of a credit. For example, If the Iron butterfly is moving against you, continuing to move up towards the protection calls, do not compound the loss and close out of call protection leg. If the trade goes against them on the call side, the trader would roll up the put side and take more premium.
The Iron butterfly is a great delta neutral strategy, giving traders a great return on capital, but lower chance of success. In determining which strategy to use, make sure to look at the cost basis and see which fits account best. With it being a great strategy to use, the iron fly is a harder strategy to master at times. The beta weight
for the portfolio ended up being 0.28, much better since I got out of those $NKE calendar spreads. The profit-loss diagram still looks disastrous The best idea for getting around this is selling more delta neutral strategies and hopefully increasing the height of my curve.
You got anything you want me to talk about in particular? I want to pay more attention to the small account traders, as it's hard to build from a few hundred dollars to a few thousand.
If you have anything you want for me to talk about, please feel free to comment below or email me! I really want to focus on building my smaller account, and people trying to build their smaller accounts.
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