SPX Credit Spread Trader

of using a butterfly to roll down a bull put spread (or roll up a bear call spread)?

Say you have a put spread at

1 1218 short
1 1217 long

To roll down and turn this into a buttergfly, are you saying that I should buy 1 more 1217 long and sell 1 1216 short (keepig the 1218 short). THat would make a fly, but I don't see how I"ve rolled down, since i'm still in trouble if 1218 is breached. I know i'm missing something here. Would anyone be kind enough to explain? Thanks much!
 
I'll take a stab at this since I want to make sure I understand it.

In your example, if this is a bull put spread, then the SPX should be above 1218, otherwise it's ITM and that ain't good.

So,

Buy 1 1218
Sell 2 1217
Buy 1 1216

The net effect of this is to leave you with a rolled down bull put spread of 1217/1216. You have closed out the 1218 (which was originally sold) by buying it back and you have closed out the 1217 (which was originally bought) by selling it. You then sell one additional 1217 and buy 1 1216. The butterfly trade allows the adjustment to occur in one trade, but it has to be combined with your existing bull put spread to get the net effect of being left with a rolled-down bull put of 1216/1217.

Quote from rjg96:

of using a butterfly to roll down a bull put spread (or roll up a bear call spread)?

Say you have a put spread at

1 1218 short
1 1217 long

To roll down and turn this into a buttergfly, are you saying that I should buy 1 more 1217 long and sell 1 1216 short (keepig the 1218 short). THat would make a fly, but I don't see how I"ve rolled down, since i'm still in trouble if 1218 is breached. I know i'm missing something here. Would anyone be kind enough to explain? Thanks much!
More...
 
Quote from rjg96:

of using a butterfly to roll down a bull put spread (or roll up a bear call spread)?

Say you have a put spread at

1 1218 short
1 1217 long

To roll down and turn this into a buttergfly, are you saying that I should buy 1 more 1217 long and sell 1 1216 short (keepig the 1218 short). THat would make a fly, but I don't see how I"ve rolled down, since i'm still in trouble if 1218 is breached. I know i'm missing something here. Would anyone be kind enough to explain? Thanks much!
More...

You're not turning your spread into a butterfly, rather you are combining your existing spread with a new butterfly to result in a new position e.g.


short vertical 1218/1217 + long butterfly 1218/1217/1216 =
short vertical 1217/1216

Hope that makes sense.

You can use other similar "one trade" morphing strategies to turn your short vertical into backspreads, ratio spreads, diagonal, short butterflies, diagonals, calendars, long singles etc. depending on your new direction sentiment. The "options" are obviously endless.

[EDIT] Speaking of morphing and options metamorphosis, if you weren't already aware of this book you should check it out: http://www.riskdoctor.com/books.html


Momoney.
 
Quote from rdemyan:

I'll take a stab at this since I want to make sure I understand it.

In your example, if this is a bull put spread, then the SPX should be above 1218, otherwise it's ITM and that ain't good.

So,

Buy 1 1218
Sell 2 1217
Buy 1 1216

The net effect of this is to leave you with a rolled down bull put spread of 1217/1216. You have closed out the 1218 (which was originally sold) by buying it back and you have closed out the 1217 (which was originally bought) by selling it. You then sell one additional 1217 and buy 1 1216. The butterfly trade allows the adjustment to occur in one trade, but it has to be combined with your existing bull put spread to get the net effect of being left with a rolled-down bull put of 1216/1217.
More...

That's right. That is exactly what I did with all my spreads unfortuntely this month. One of them being on my MNX spread.

My original position:

Bull Put Spread Portion of Iron Condor Only
Short MNX Oct 152.50 Put
Long MNX Oct 150.00 Put
(152.50 / 150 Bull Put Spread)

Now to roll down... This is the order I put in

Buy 1 MNX Oct 152.50 Put
Sell 2 MNX Oct 150.00 Put [EDIT] STC & STO
Buy 1 MNX Oct 147.50 Put

SPREAD ESTABLISHED NOW: 150 / 147.50 BULL PUT SPREAD

The 152.50 & 147.50 Puts are my wings, and the 150 is the body of the BUTTERFLY
.
I hope this all made sense!

Good luck!
 
My brain is tired this weekend, I am not going to even attempt to jump in the butterfly discussion lol. I do not even understand what I wrote myself!

Lets stay above 1185 next week ;).

Phil
 
Phil,

I think you mentioned in a previous post that one should not get overly complacent/confident after a few months of success with credit spreads and should not increase the number of contracts.

However, as my account size grows, I'm slowly increasing the number of contracts to keep up with my growing account -- to take advantage of "the magic of compounding"... are you suggesting this is not good?
 
Found the following fact in an article about October generally being a difficult month for investors.

"There's never been a decline in the stock market in the 12 weeks prior to the end of a series of Fed rate hikes," Kleintop said. "It's always been up and the average is 5 percent."

Don't know when they plan to stop, but we might want to keep this in mind going forward.
 
Quote from optioncoach:

My brain is tired this weekend, I am not going to even attempt to jump in the butterfly discussion lol. I do not even understand what I wrote myself!

Lets stay above 1185 next week ;).

Phil
More...

I agree Phil... and below 1210... LOL
 
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