SPX Put Broken Wing Butterfly

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Tuesday on SOM TV, I put on a live BWB and am talking about the trade today after big move in SPX yesterday.The trade is in Jan 6 expiration and was done with SPX around 2209. Buy 1 Jan 2200 put  Sell 2 Jan 2170 puts  and Buy 1 Jan 2130 put. The debit was 2.05 and the margin or risk for this 1 unit trade is $1205 dollars, which is the risk on the downside. The risk on the upside is about $205 .I started the trade 1.75 deltas short on this $1200 trade.  During SOM TV Tuesday, I mentioned if SPX hit 2223 yesterday, I would look at the trade and probably sell a put credit spread to narrow the upside of the Broken Wing Butterfly. The original Butterfly width was 30 on the upside and 40 on the downside. By adjusting with a put credit spread, selling the 2190-2200 put credit spread in January, we would be decreasing the upside width to 20 and reducing the short delta exposure on the upside. If you didn’t do anything to the trade, the price is now around $1.35 with SPX at 2243 as of 10:09 am central today Dec 8. If somebody did nothing, they would be down $70 right now divided by $1205 of capital or about 5 1/2% today after huge move yesterday. Not bad but the key is risk management. If someone dealt with this yesterday at 2223 which I mentioned as adjustment point, you’d be singing  in the rain like Fred Astaire. Key point: when you adjust is more important than actual adjustment. 

Thanks,

Dan Sheridan  dan@sheridanmentoring.com

Why Income Trades did fine with SPX down 62.

Most of the live Income Trades (delta neutral, positive theta, selling strategies) that students in our community and myself had on today did much better than expected, and in some cases did great. lets discuss at least 2 of the trades I had on as examples.

Trade #1 did absolutely great today, and it was a basic non-Directional trade that made 20% today with the market going drastically against us. The trade was a balanced Butterfly trade in SPX in the August 19 expiration, and the width of the Butterfly was 40.The trade was put on yesterday when SPX was around 2105.The trade was put on using all Calls.  Here is the trade using a 1 contract example. Buy 1 2065  and sell 2  2105’s and Buy 1  2145. I bought some units at $5.40, $5.30, and $5.20. A unit could be 1-2-1 or 2-4-2 or 3-6-3, whatever size you are trading at. In this trade, we want the price of SPX to be near the short strike of 2105. Today at around 9:45 am central time, SPX was around $2059 and I got out of my entire trade that I bought around $5.30 and sold it for a $6.40 Credit, a return of about 20%. How did that happen with SPX moving about 50-60 points from the short strike, which is bad for this trade? Did theta get us the high return in 1 day?  No. VIX was up  about 3 points at 8:45 am central, this is a short Vega trade, shouldn’t an increase in Implied Volatility hurt an Short Vega at-the- money Butterfly trade? It should, but this was a bit of an unusual situation. Usually when SPX closes around $2110 which it did yesterday, the VIX would be between 11-15 because if SPX is 30-35 points from its all time high, VIX would be in the lower end of the range. But yesterday the VIX was around 18 because of the UK vote, sort of an Earnings situation for the market, an Event that could trigger a big Gap move. With VIX up about 3 at 8:45 am central, we still made money from the implied Volatility because the Volatility increases in the individual strikes of our Butterfly worked in our favor. Just because the VIX went up doesn’t mean we had to lose on a short Vega trade. The key is what happened with the volatility of each of the  strikes of the Butterfly combined.

Trade #2 was a Heart stopper. It was a 1 Day Iron Butterfly in SPX that I put on Wednesday and took off today for about a scratch, but was thrilled. A scratch means I basically broke even on the trade but covered my commissions. The Trade was in in SPX and I entered it Wednesday with the Index at $2090. It was a 2 Day trade and I used the June 24 expiration which expires today. I bought the 2100 call and sold 2090 Call. In the Puts, I bought the 2080 Put and sold the 2090 Put. The Iron Butterfly was put on Wednesday for a credit of $9.40 with SPX at $2090. Today I bought the spread back for a debit  of $9.35. How could I have made any money on this trade since the SPX moved over 50 points away from my sweet spot which is the short strike? Part of the answer is that when SPX was at $2059 and I bought the spread back, we still had almost 6 hours left of Trading and the market was pricing in the fact that a big rally back was possible. The other part of the answer is the fact that although the VIX was up, this short Vega trade made money from the Volatility because each of the strikes of the Butterfly didn’t all move up the same. The takeaway is that Greeks like Vega and Theta are Theoretical numbers and in real life like today, don’t always move like they say they should. The answer is to really understand the Greeks and become a good Option Craftsmen.

Go to Sheridanmentoring.com and check out, fresh off the press,  the archives of last weeks 2 day Chicago Seminar we put on.

Options Trading Seminar June 16-17 – Live Streaming

At Sheridan Options Mentoring, we’re proud to offer informational resources for people who are interested in learning more about options trading, options strategies, and more. We’re pleased to announce our annual options seminar, hosted by our very own Dan Sheridan in Chicago. This year’s seminary will take place on June 16th and 17th and will be streamed live.

Learn Options Trading Secrets from Industry Experts

The live stream of the options seminar will feature presentations from Dan Sheridan, founder of Sheridan Options Mentoring as well as the following speakers:

  • Brian Overby, Senior Options Analyst at TradeKing and author of The Options Playbook
  • Russell Rhoads, Senior Instructor at CBOE’s Options Institute
  • Tom Sosnoff, Co-Founder of ThinkorSwim and founder of TastyTrade
  • Steve Basigo, Veteran Retail Trader
  • Karen Bruton, AKA “Karen the Super Trader”
  • Mark Fenton, Senior Mentor at Sheridan Mentoring and Veteran Retail Trader
  • Jimm Bittman, speaking about credit spreads
  • Dino Karahalios, Veteran Retail Trader

Live Stream Our Options Trading Seminar

The live stream seminar will get you full access to each session, both days, streamed live in real time.

You’ll be able to ask any questions you may have to a moderator on our live chat box, and you’ll have access to HD recordings of each session in case you miss one or want to rewatch it.

Downloadable copies of all the presenters’ materials will also be offered, and you’ll have access to all of the material for at least six months.

Seminar Time, Dates and Details

This year’s event will be at the University of Chicago’s Gleacher Center at 450 N. Cityfront Plaza in Chicago. The seminar is from 7:30 a.m. to 4:30 p.m. on Thursday, June 16, and from 8 a.m. to 4:30 p.m. Details for each speaker will be announced shortly, but space is limited for the seminar, so you’ll want to book your spot soon!

You’ll learn about different options trading strategies as well as trade options, including Iron Condor methodologies, Butterfly strategies, and much more.

Tickets for the streamed seminar are $437 per person.

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To learn more about our summertime options trading seminar, contact us today. We want you to succeed at trading!