Swing trading with Butterflies

[Global OptionsTrades]

Hi @Global OptionsTrades

Like it. Following the thread. New to Opts. Could you please help me understand the following:

1. If you are doing a long butterfly and your short contracts are ITM, then a. do you keep this open this Options Close. and b. do you get assigned on the short side and if so what is your plan ?

Example: ES 1/2/1 - 1 long call, 2 short calls and 1 long call. If you get assigned when 1 long call and 2 short calls are ITM and the short calls are the ones assigned, what is the plan ?

2. How many lots do you trade ?

Thank you

Thanks @traderwald

1. Good question re assignment.

An imperfect but truthful answer is that it hasn't been an issue yet! Either my closing orders have filled well before that becomes a possibility, or everything has expired worthless. Remember that whilst possible for the short side to fill, the long ItM side will provide protection.

Per the point above, a preference for cash-settled contracts where possible insulates me from the prospect of delivery of a load of futures on unfavourable terms, but not the financial impact.

2. As with most people I started out trading single contracts, and trade larger position sizes now. Its straightforward to understand value at risk / maximum loss with these spreads, so application of Kelly Criterion provides a good framework to determine optimum position size.

 

[Global OptionsTrades]

The S&P500 put fly from yesterday (#137) closed today in profit.

Trade date: 18 January 2022
Security: SPX
Price at opening: 4592
Direction: Put
Expiry date: 21 January 2022
Strikes: 4480 / 4520 / 4600
Structure: 2 / 3 / 1
Opening Spread: 12.05
Close date: 19 January 2022
Trade duration: 1
Closing spread: 17.50
Profit / (Loss): 5.45
Profit / (Loss): 45.2%

I opened a put fly on TSLA today, and closing orders filled 90 minutes later.

Trade date: 19 January 2022
Security: TSLA
Price at opening: 1013
Direction: Put
Expiry date: 21 January 2022
Strikes: 955 / 975 / 1015
Structure: 2 / 3 / 1
Opening Spread: 6.80
Close date: 19 January 2022
Trade duration: 0
Closing spread: 7.85
Profit / (Loss): 1.05
Profit / (Loss): 15.4%

I could do with a few more days like this

 

[traderwald]

Thank you @Global OptionsTrades

Which markets do you find most feasible (in terms of liquidity and open interest) to trade option strategies in ?

For example do you trade Eurex / Euronext etc. or any other market or maybe you can comment which markets have good liquidity if you know.

 

[Global OptionsTrades]

You can see I'm trading SPX (and ES), NDX (and NQ), RUT predominantly.

My scan list includes oil (CL), cable (GBP), AUD, T-Bonds (ZB) and VIX but trading opportunities are occasional.

Further to prior discussion here, I've added a few stocks with zero dividend, liquid options market, and volatility. These include (predictably) AMZN, GOOG, NFLX, TSLA.

Margin and commission are obviously considerations e.g. SPX is half the commission of ES for twice the exposure.

I would be keen to hear about other markets / securities that might meet my requirements?

 

[Global OptionsTrades]

Placed orders for a call fly on SPX yesterday. Position filled as SPX dropped towards the end of the session, and continued to fall so that the position is 75% down. Its currently a lottery ticket.

Trade date: 20 January 2022
Security: SPX
Price at opening: 4578
Direction: Call
Expiry date: 24 January 2022
Strikes: 4615 / 4635 / 4655
Structure: 1 / 2 / 1
Opening Spread: 0.90

 

[traderwald]

@Global OptionsTrades

I am very new to opts trading and have been looking for what are liquid options available. Found this stats about Eurex Market (attached) a few months ago. Has Equity options and Equity Infex options as well. Some like OESX have 17 million traded contracts for Oct 2021. There are also stock options which trade around 600k contracts. Not sure if this is big enough volume. What do you think ?

What is the traded volume of contracts on SPX options in a given month on average ? (I assume it is much bigger than 17 million)


I am also looking at other markets as well. ASX (Few stocks have good enough volume for about 5 contracts or so per trade)and others like Intercontinental Exchange etc. But US seems to have the best volumes.

Do you use IB for trading ?

 

[Global OptionsTrades]

Yes, I use IB.

I used to try to apply this to DAX30, but have recently switched to EuroStoxx, but as you can see from the lack of trades in either, opportunities are few and far between.

 

[Global OptionsTrades]

The bounce didn't happen.

Trade date: 20 January 2022
Security: SPX
Price at opening: 4578
Direction: Call
Expiry date: 24 January 2022
Strikes: 4615 / 4635 / 4655
Structure: 1 / 2 / 1
Opening Spread: 0.90
Close date: 24 January 2022
Trade duration: 4
Closing spread: -
Profit / (Loss): -0.90
Profit / (Loss): -100.0%

 

[Global OptionsTrades]

Popped a couple of short positions on yesterday.

Trade date: 25 January 2022
Security: SPX
Price at opening: 4317
Direction: Put
Expiry date: 28 January 2022
Strikes: 4110 / 4185 / 4335
Structure: 2 / 3 / 1
Opening Spread: 26.90

Trade date: 25 January 2022
Security: RUT
Price at opening: 1981
Direction: Put
Expiry date: 28 January 2022
Strikes: 1870 / 1905 / 1940
Structure: 1 / 2 / 1
Opening Spread: 2.20

Most of the closing orders on the RUT trade filled shortly after opening, leaving a 'free bet' on the remainder.

 

[Global OptionsTrades]

Orders filled to open a short fly position on Nasdaq prior to the Fed announcement, and closing orders filled just afterwards, in profit.

Trade date: 26 January 2022
Security: NDX
Price at opening: 14446
Direction: Put
Expiry date: 28 January 2022
Strikes: 13830 / 14030 / 14430
Structure: 2 / 3 / 1
Opening Spread: 50.50
Close date: 26 January 2022
Trade duration: 0
Closing spread: 61.63
Profit / (Loss): 11.13
Profit / (Loss): 22.0%