Weekly Iron Butterfly on SPY

R

rocky_raccoon

Hi there!

I've been observing weekly options on SPY for a while and I found that there is a very high probability trade in SPY weeklies.

On Thursday morning, sell a weekly Iron Butterfly such as 131/134/137 on SPY and close it on Friday afternoon or Monday morning.

The typical credit for this trade is ~$2/spread. The margin is ~$1/spread.

There is a good chance that the trade makes .10-.20 (or 10-20% return on margin in one day) by Friday afternoon.

What I am not sure of is the probability and size of the potential loss. I don't think that total loss (full margin) is possible in just one day but what is the reasonable amount of loss?
Also, what position size (% of account) is suitable for this trade?
Is 5% too big or too small?

Regards,
RR
 
Quote from rocky_raccoon:

Hi there!

I've been observing weekly options on SPY for a while and I found that there is a very high probability trade in SPY weeklies.

On Thursday morning, sell a weekly Iron Butterfly such as 131/134/137 on SPY and close it on Friday afternoon or Monday morning.

The typical credit for this trade is ~$2/spread. The margin is ~$1/spread.

There is a good chance that the trade makes .10-.20 (or 10-20% return on margin in one day) by Friday afternoon.

What I am not sure of is the probability and size of the potential loss. I don't think that total loss (full margin) is possible in just one day but what is the reasonable amount of loss?
Also, what position size (% of account) is suitable for this trade?
Is 5% too big or too small?

Regards,
RR
More...

did you open a position yesterday, thu 12?
 
Quote from traderlux:

did you open a position yesterday, thu 12?
More...

Yes, I did and it does not look good now (down ~30%). I decided to keep it till Monday. SPY may have some pull-back in the morning and that may bring the trade to break-even or reduce the loss.

On the other hand, 3 previous trades produced 22%, 12% and 8.5%, so I am still positive overall.
 
I think you have to keep those weeklies really small or as a hedge for your larger monthly trades. I know returns are possible but looking at Fridays action, I'm sure lots of pain to go with that up move on those trading weeklies. And moves like that are too common. Just my take.
 
Quote from hedgeman:

I think you have to keep those weeklies really small or as a hedge for your larger monthly trades. I know returns are possible but looking at Fridays action, I'm sure lots of pain to go with that up move on those trading weeklies. And moves like that are too common. Just my take.
More...

Yes, it is small. I am only experimenting with them right now trying to find an optimum trade size and timing.
 
I only have one comment pertaining to very short term trading.
It's tempting to look at a potential one day trade, and be impressed with the % return made on the deal.
But if that same "unit of cash" is not put back to work again for a week, then it was NOT a one day trade. It was a one week trade.
If you do a one week trade, and the same "unit of cash" is not put back to work again for 3 weeks, then it was NOT a one week trade. It was a 3 week trade.

Calculate your % returns accordingly, or you risk being suprised at year end, when your annualized % return, is not even close to what you thought you were earning, trade by trade.
 
Quote from Put_Master:

I only have one comment pertaining to very short term trading.
It's tempting to look at a potential one day trade, and be impressed with the % return made on the deal.
But if that same "unit of cash" is not put back to work again for a week, then it was NOT a one day trade. It was a one week trade.
If you do a one week trade, and the same "unit of cash" is not put back to work again for 3 weeks, then it was NOT a one week trade. It was a 3 week trade.

Calculate your % returns accordingly, or you risk being suprised at year end, when your annualized % return, is not even close to what you thought you were earning, trade by trade.
More...

You're right, of course. But I never mentioned my returns in relation to time frame. Besides, making avg. 10% return on risk in a week (one trade a week) is more than enough by any standard. The only questions are: is this sustainable or pure luck and what %% of the account should be used for such a trade.
 
You didn't put on an iron butterfly on the spy weekly. You put on an iron butterfly on spy a week before expiration.

If the monthly is about to expire, there is no weekly.

Optionpit.com (former student) put on free webinar on weeklies and getting in Thursday morning and out Friday afternoon was one of the plays.

Stephen
 
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