I was suspecting you know a bit about trading options
Are you mostly trading similar style in your main account, and also mainly on SPX, or also equity options?
From $1000 to ? Trading SPX Weeklys in my Roth
- Thread starter Trade Theory
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I was suspecting you know a bit about trading options
Are you mostly trading similar style in your main account, and also mainly on SPX, or also equity options?
I was suspecting you know a bit about trading options
Are you mostly trading similar style in your main account, and also mainly on SPX, or also equity options?
I definitely focus primarily on the S&P 500 in my main account but I have a few other strategies I place in equities such as straddles and put ladders. My bread and butter trade has been this same strategy along with some short /ES contracts so that I begin the trade with a neutral delta. I don't want to go too deep into it because I want to focus on the roth in this journal, but a typical trade I'll place would be this:
I call this one The Commission Monster:
I'd enter and exit the /ES and SPX fly at the same time as a pair. The price slices are my focal points when positioned: 3350 is my profit target on the upside which hopefully hits near expiration. What makes the most money for me in this trade is when the market's consistently grinding to the upside. 3300 is this week's lower expected move. If we hit the lower expected move, I'll usually put a stop loss on the futures around breakeven and hold on to the short /ES in case the market tanks. I've added slices to show PnL if the market makes 2 or 3 sigma moves to the downside. Worst case in this trade is if the market chops around and doesn't really go up or down throughout the week.
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What if market hits 3300, triggers your stop loss and then rebounds beautifully?
On the /ES once I hit the lower price target, that's when I put the stop loss on the trade so if the market pops back up I've realized enough profit on the short /ES to finance the butterflies. So at that point I'm flat on the trade, If the market gaps down I'm making money on the /ES shorts (assuming the stop doesn't trigger). If the market rallies back up the stop is triggered on the /ES, I've locked my profit on the hedge and I've still got the butterflies as a "lottery ticket" to the upside. The real risk is if the market doesn't really move throughout the week or moves up slightly, the butterflies would expire worthless and I didn't make any on the /ES short. Very similar to a strangle. It's my way of being long the market without having to be long the market.
That is something I'm greatly interested in - hedging. I know very little about how to do it properly, and I'm having a bit of trouble understanding your example with clarity.
I'd greatly appreciate it if you could break your long butterfly with /ES short hedge explanation down even further (simplify it). Thank you @Trade Theory !
I'd greatly appreciate it if you could break your long butterfly with /ES short hedge explanation down even further (simplify it). Thank you @Trade Theory !
Just know that delta is your directional risk and I’m starting that trade with close to 0 delta. So I’m trading volatility to the up or downside. It’s actually pretty complicated when you really break it down which is something I’m not prepared to do here. The way I trade it requires an understanding of the Greeks. So I’d start by learning what delta, gamma, theta, and Vega are and how they affect your PnL. If you wanna do it with futures you gotta learn how futures are leveraged and margined as well as what future ticks are and what they’re worth. One /ES contract = 50 SPX deltas or 1 /MES = 5 SPX deltas. That means /ES is 50 times SPX (near perfect correlation) which is equivalent to trading a $166,425 product. Get caught on the wrong side of a big move and you’ll get your head blown off. If you already understand everything to this point, the trade works similar to a straddle, on the long side SPX butterflies and short side some short /Es delta to offset the flies and begin the whole trade with a flat delta. Then scalp /ES on a downmove or on the upside wait for theta and gamma to get to work.
Is it cheaper to do it on SPX or SPY? Or you only want cash settlement?
SPX seem to have bigger spreads