Delta Hedged Put Butterfly - The road to 50% APY

[Longshot520]

Damn it all with these price spikes. My vega turned positive today, and so I had to think about what to do. Because of the low volatility, the original butterfly position did not have a lot of money in it, and more importantly, I needed to buy a call that was closer to the money to offset what amounted to a lower delta, which always bothers me because it lowers my theta. In the interest of dealing with the positive vega, while putting a bit more money into the trade, I sold 5 1510-1560-1610 put butterflies, and then offset the negative delta with 10 1540-1550 call verticals. This upped my theta nicely, as well dramatically decreasing my vega, and delta is again close to neutral.

Strong earnings means we're now flirting with new highs. I have a lot of upside protection in the short term for now, we'll see how it plays out.

New Position:

New Greeks:

New Analyze Graph:

 

[Longshot520]

Just checking in. Have to reiterate that I love this trade. I was as calm as a Hindu cow during the Fed's rate decision, even with the price of RUT above my profit range, because I'm hedged! The only way I would have lost any money today would have been if RUT crashed 90 points, a 5% down move, which is unheard of. Even if the Fed had cut rates by .5% today and RUT skyrocketed away from my profit tent, I would have simply closed the trade at a small profit (indicated below) and re-evaluated the next trade. Not the speediest profit trade out there, but slow and steady will win the race.

 

[Longshot520]

A few moves with no journaling the last few days' my 2nd son was born. Whirlwind times!

On the spike last week I rolled up my 1540 to 1590, and in typical fashion, Trump came out and killed the market with tariff talk. I am in a defensive position once again with my 1590, and today I liquidated my 1540/1550 call spread to make my delta more neutral and prepare for any tariff disasters tomorrow.

New position:

New Greeks:

New Analyze Graph:

 

[Longshot520]

I'm slacking big time on this thing. I had forgotten how much an infant can be a complete normalcy destruction machine. The most recent trade above I was in until about 3 days before expiry and made about $1800 profit. The consistently low volatility makes profitability that much more difficult to come by in a short period of time, there is simply no volatility collapse. I have started another one on 6/18 and I will try to be more diligent in sticking with the journal. August 1470/1520/1570 put butterfly with a 1490 call hedge.

Here are the Greeks for today:

Delta has gone very positive but price is where I want it to be. Rather than adjust my call to lower delta, I will most likely be adding more flys later today to offset it and take advantage of the small spike in volatility the last 3 days have brought. Will post again with the updated Greeks and the analysis graph later.

 

[Longshot520]

Decided against doing anything after today's Fed induced kick in the nuts. Market action essentially corrected my Delta for me. Delta and Gamma are nice and flat, Theta is positive, Vega is negative. All is well for now.

Analyze Graph:

 

[Longshot520]

After today's move down to my short strikes, I examined the position and saw some minor Gamma risk to the downside. I rolled the 1520 flys down 20 points to 1500. The 1520 fly was up $2200 at the time of sale, with the call down about $2k currently. Gamma is much safer now.

Here are the new Greeks:

and the new analyze graph (Delta is a tad high but with plenty of room to the downside, and the potential for some kind of headway at the G20 this weekend, I'm OK with that):

 

[Longshot520]

It occurred to me yesterday afternoon that the above decision was made based on me accidentally using the Delta number projection as the Gamma projection. I shouldn't have rolled down. Lack of sleep and moving too fast. Market is definitely making me pay for my stupid mistake by spiking the RUT 3% in the 2 days after I rolled down. Luckily for me this method is resilient AF and even after that stupid mistake, I'm up a bit over $500 because I left the delta slightly positive when I adjusted. The GDP number is clearly making investors pile into US small cap, as RUT has seen unstoppable buying in the face of large sell orders all day yesterday and today.

Greeks look like I'll be ripe for an adjustment back up, but even with the positive Delta and Vega issue, my T+0 line is still flat or rising even on an explosive up move, so I'll probably wait and see how the G20 plays out and decide what to do Monday.

I guess this trade will be at best a good lesson in how forgiving the setup actually is. F*ck.

 

[Longshot520]

T+0 line as of 10:40 CDT. Call doing all the heavy lifting in the P&L, thankfully because the above f*ck up happened so early in the trade.

 

[Longshot520]

Using this pullback to close this mistake with a scratch and re-evaluate. New position coming soon.

 

[.sigma]

I never looked at other than 1-2-1 and 1-3-2 fly. Logistically 143, 154 flies are difficult to fill in my opinion. May be better to split the combo into unbalanced 121+ 3x3 credit spread. That will have a better chance to get filled.

Obviously your view of price and vol outlook effects your p/l.

View attachment 198529

Just as an example, I set-up 3 fly's with 3 weeks to go with similar delta's around -120. I will take off the fly some time in the middle around 3/13/2019

1) Regular Bfly (top right) 2725-2800-2875. (8 count). Debit $32.5k
2) 132 Fly (bottom left) 2725-2825-2875 (10 count). Debit $34.5k
3) 154 fly (bottom right) 2725-2825-2850 (6 count). Debit $26k

Assuming my assumption of price and vol remains where it is, 132 is better from %ge profit and total $ perspective. P&L is shown in the green right next to "Now" on each graph. 132 has slightly higher breakeven and 154 has slightly lower breakeven (expected since you sold more credit spread upside). Long story short you are not gaining much from 154 fly. 132 is kind of sweet spot.

what trading software is that? Looks like TOS but I’m pretty sure it isn’t.