Swing trading with Butterflies

Unsurprisingly, Fed increased interest rates yesterday, which predictably pushed equity markets down. My short position on S&P500 (#288) closed in profit.

Trade date: 31 October 2022
Security: ES
Price at opening: 3,884.0
Structure: AtM/OtM Call Credit Spread
Expiry date: 04 November 2022
Strikes: 3885 / 3940
Opening Spread: 23.00
Close date: 02 November 2022
Trade duration: 2
Closing spread: 5.50
Profit / (Loss): 17.50
Profit / (Loss): 54.7%
 
Global OptionsTrades said:
Unsurprisingly, Fed increased interest rates yesterday, which predictably pushed equity markets down. My short position on S&P500 (#288) closed in profit.

Trade date: 31 October 2022
Security: ES
Price at opening: 3,884.0
Structure: AtM/OtM Call Credit Spread
Expiry date: 04 November 2022
Strikes: 3885 / 3940
Opening Spread: 23.00
Close date: 02 November 2022
Trade duration: 2
Closing spread: 5.50
Profit / (Loss): 17.50
Profit / (Loss): 54.7%
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What percentage of your account do you put in one of these?
 
newwurldmn said:
What percentage of your account do you put in one of these?
More...

I use Kelley, calculated on actual trades so VaR% changes dynamically per performance.

Currently, its ranging from 0.8% to 18% for different strategies/structures.

I don't trust the 18% - particularly when I'm opening positions with similar exposure (e.g. short ES, AND RUT) so will limit exposure to 10% for that one, but I'll be putting orders in later today with c.6% and c.8% VaR.

I would welcome your views on position size and VaR if you are happy to share.
 
Directional swing trade orders filled earlier today.

Trade date: 03 November 2022
Security: ES
Price at opening: 3,738.0
Structure: AtM/OtM Call Credit Spread
Expiry date: 09 November 2022
Strikes: 3735 / 3785
Opening Spread: 21.00

Trade date: 03 November 2022
Security: NQ
Price at opening: 10,789.0
Structure: OtM Call Credit Spread
Expiry date: 09 November 2022
Strikes: 11120 / 11200
Opening Spread: 19.63

Trade date: 03 November 2022
Security: RUT
Price at opening: 1,783.0
Structure: ItM/AtM Put Debit Spread
Expiry date: 11 November 2022
Strikes: 1780 / 1820
Opening Spread: 21.63
 
It was a fairly lively opening, with this moving from profit into loss before closing orders filled in profit earlier in the session, after opening yesterday.

Trade date: 03 November 2022
Security: NQ
Price at opening: 10,789.0
Structure: OtM Call Credit Spread
Expiry date: 09 November 2022
Strikes: 11120 / 11200
Opening Spread: 19.63
Close date: 04 November 2022
Trade duration: 1
Closing spread: 8.00
Profit / (Loss): 11.63
Profit / (Loss): 19.3%
 
US indices have risen slightly since Thursday so the outstanding positions are underwater, but I don't have a strong conviction to close.

And saw a chance to profit from NQ with a fly to partially offset expected losses with this:

Trade date: 08 November 2022
Security: NQ
Price at opening: 11,077.1
Implied Vol 43.8%
Direction: Put
Expiry date: 11 November 2022
Strikes: 10725 / 11075 / 11425
Structure: 1 / 2 / 1
Opening Spread: 95.00
 
Strategy question: Do you mostly make your money from harvesting excess volatility risk premium, or are you just good in estimating direction/path? (and thus would have similar results if hypothetical excess vol risk premium didn't exist)
 
Good question @trade4succes

The answer is not binary.

I looked at volatility in some detail some time ago and couldn't find a bankable edge that I could exploit from trading volatility alone (*). My directional calls generally seem to be pretty good - although not so much this week!

My strategies / methodologies:
  • Directional (swing) trades ising vertical spreads further away from AtM are more purely directional, and relative volatility doesn't have a huge impact
  • where possible - depending on skew etc - I bring the short side in closer to AtM to harvest gains from excess volatility risk premium, as you put it.
  • the body for Butterflies can be far OtM or closer to AtM for similar reasons and also depending on my estimated / target return
  • Calendars are much more dependent on Vol movement and there would be little point in trading them without exploiting the relative impact of IV across respective expiration terms.
  • (*) Outside of this journal I do a couple of other things, including a 'no brainer' momentum strategy on individual equities to participate in changes in volatility over a month or two, which makes a useful profit vs the work involved but is not a particularly interesting discussion to put on a forum.
Do you trade similarly? I would welcome your thoughts.
 
Unusual situation for me today. I want to turn around short directional trades (#294). The ES position expires today. At c.45 it has only 5 points downside if ES rallies. If ES falls, there is potential upside in the trade. Out of character for me but I'm watching the intraday chart!

Escaped with a small loos on the Russell 2000 trade and nursing a near total loss on ES.

Trade date: 03 November 2022
Security: RUT
Price at opening: 1,783.0
Structure: ItM/AtM Put Debit Spread
Expiry date: 11 November 2022
Strikes: 1780 / 1820
Opening Spread: 21.63
Close date: 09 November 2022
Trade duration: 6
Closing spread: 19.73
Profit / (Loss): -1.90
Profit / (Loss): -8.8%
 
Turned around Russell 2000 and added Nasdaq long directional positions.

Trade date: 09 November 2022
Security: RUT
Price at opening: 1,796.0
Structure: ItM/AtM Call Debit Spread
Expiry date: 16 November 2022
Strikes: 1760 / 1795
Opening Spread: 19.59

Trade date: 09 November 2022
Security: NQ
Price at opening: 10,943.0
Structure: OtM Put Credit Spread
Expiry date: 16 November 2022
Strikes: 10510 / 10600
Opening Spread: 20.75

The (perhaps disturbingly) attentive will note that this is potenially contra to the fly (#296) so we'll see how they turn out as the AtM fly expiring a couple of days before this vertical spread are not necessarily exclusive, and Nasdaq staying between 10,600 and 11,300 would allow both to close profitably.
 
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