How are you today? Anything new been going on?! Life has been so busy lately, so im glad Im able to write. Although results don't show it, I can tell my trading is getting better. LOL
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Cash and sweep 2514.0606
2259 was last weeks cash and sweep number.58. My beta weight has been coming along, Im doing better with it. Although my beta weight for the portfolio is good, my profit/loss diagram is UGLY. My portfolio's break even points are not based on the movement of SPY.
I want you to take a guess on what we're chatting about.! Iron butterfly strategy I want to give some quick pointers on how to build a good Iron Fly
Opening Trades
Week 36: September 3rd-September 7th
Ticker
Day trade was placed
bp effect thinkorswimStrategy(Strikes)
Trade Closed Date
Amount of contracts
AMD
Sept 6, 2018
sixty
149.95
PC (-25x/24)
2
AMD
The only trade opened for this week, a put credit spread. I placed this trade on 9/6 hoping to ride the wave up, as the chart looked like it was continuing a nice run. Reached its highest price for the year around this time.This stock price occurred 7 days after the trade was built.
Trades shut down
Date opened trade
Profit max
BP Effect
Type of strategy used
Day of closed trade
Nike
8/7/18
100
138.45
Calendar Spred using the 80x calls
Win @ 1.75 (9/7/18)
1
The Q's
8/21/18
62
150.95
IC (-184x/185 -174x/173)
Win @.12 (9/6/18)
2
The Q'sBuilt this trade and confirmed it during week 34 At the time, the Q’s seemed to be trading in a consistent pattern. The stock price had stayed within a range of
The put side consisted of selling the 174-strike puts and buying the 173-strike puts. I sold two of these for ~[BLOC1].31 per spread. I bought back these back for [BLOC1].12 per iron condor.
NIKE
Spread originally made on August 7th For this particular calendar spread, the 80-strikes were used. Calendar spreads are constructed by buying and selling contracts with the same strike price but different expiration times, Traded this spread for.30, while selling it back to the market for .75. I needed to make up for my negative portfolio, so I bought a bullish trade. Luckily, I made the correct read and trade
The iron butterfly: How do we build it?
Iron butterflies, what are they exactly? A straddle with small protection wings. First, you sell:
1 at-the-money put1 ATM Call(same strike)
1 out-the-money call
1 OTM Put( different strike)
A synthetic straddle, using the OTM calls and puts as protection for the "straddle" legs
The BE points
(Strike price of ATM put) - (credit received)
And
Strike price of ATM call plus premium received
Why do use them?
We want the stock to stay range-bound. If the stock has had lots of high volatility, maybe we can play these stocks range bound.
This trade is less capital intensive, using the least amount of capital as possible while hoping the stock stays in a price range. The iron butterfly can be considered less capital intensive than the iron condor, but not always.
Iron butterflies options are considered an aggressive option selling strategy and should be used during high volatility markets If using this in a medium or low volatility environment, it can lead to disaster, with the trade ballooning up with volatility and making the trade more expensive.
Let's look at some differences between the strategies
Premium received
The Price of Max Profit
Chance of success
ROC( Return on capital)
Capital needed
Of the five bullet points above, the credit received, BP effect, winning percentages are something worth discussing.
Credit Received
The premium taken in with the iron butterflies are higher than iron condors. Why? Since the iron butterfly is based off a synthetic straddle, straddles take in more premium than iron condors. With the iron condor being two credit spreads being placed below and above the market, the premium taken in is less, but a higher rate of success.
BP Effect(Buying Power effect)
In my opinion, the best is the cost to hold the iron butterfly. It doesn't cost much at all. Whichever strikes you choose, can give the trader an even lower holding cost. The buying power can deceiving, because if the cost of the trade is low, that doesn't mean that's the max loss like other strategies. Make sure to understand the buying power effect properly, when I was first starting out I didn't take this into consideration.
Chance of Success
This might help you consider which trade to use, either the iron fly vs iron condor. The iron fly strategy wins less often than the iron condor, making it more profitable, but having less wins(ARGH)! What's the reasoning behind this? Compared to iron condors, iron butterflies have a tighter range they have to stay in.
Iron Butterfly trade adjustments
Just like the other strategies with both a call and put side, we don’t close out of the challenged side. If done correctly, we take in more credit rolling up the uncontested side while leaving the contested side the way it is. If the Iron fly is challenging the call side of the trade, DO NOT TOUCH IT! If the trade goes against them on the call side, the trader would roll up the put side and take more premium.
With less chance of winning, the iron fly gives you great return on capital. Make sure to compare the cost basis between using the iron condor vs using the iron fly. With it being a great strategy to use, the iron fly is a harder strategy to master at times.
28, much better since I got out of those $NKE calendar spreads. Even though the beta weight is good, still my profit loss is not where I'd like it to be. I'll hopefully get around this by selling more iron condors, and getting closer to SPY.
Anything I need to discuss or want to hear? I’m more focused on the smaller account guys, as that’s how I’m going to find my trade pattern.
If you have anything you want for me to talk about, please feel free to comment below or email me!
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