AI
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| Alias Born | 09/21/2009 |
Monday, September 10, 2012 7:10:25 PM
SPY went down $0.82 or 0.81 SD today. Moving back in the right direction.
If it starts to go back up, the next adjustment would be to scale back the credit spread part of the butterfly 136(short) - 141(long).
Ex. Buy a 136 - 141 debit spread to cover the position partially. This would be the same as "selling to close" the 136-141 credit spread.
Since I have a 15-30-15 butterfly open, I would reduce the credit spread by 1/3, or buy 5 contracts of the 136-141.
This adds more capital to the position, but dramatically drops the Delta, and still provides enough room to profit. It does about double the capital in the position, which would be the downside. Currently, I have ~$1800 in the position after my 1st adjustment. If I bought the debit spreads x 5 contracts at these prices, my capital exposed would go up to ~$3500.
See what the position would look like after the adjustment (light green line)...
At 28 days from now...here is how the PnL curve would change...
You still have a chance for profit below $140.60, but you substantially cut the downside risk as evident by a flatting of the profit/loss curve on the upside.
No new adjustment needed right now. Just giving you a flavor of my next management technique, if one is actually needed.
If it starts to go back up, the next adjustment would be to scale back the credit spread part of the butterfly 136(short) - 141(long).
Ex. Buy a 136 - 141 debit spread to cover the position partially. This would be the same as "selling to close" the 136-141 credit spread.
Since I have a 15-30-15 butterfly open, I would reduce the credit spread by 1/3, or buy 5 contracts of the 136-141.
This adds more capital to the position, but dramatically drops the Delta, and still provides enough room to profit. It does about double the capital in the position, which would be the downside. Currently, I have ~$1800 in the position after my 1st adjustment. If I bought the debit spreads x 5 contracts at these prices, my capital exposed would go up to ~$3500.
See what the position would look like after the adjustment (light green line)...
At 28 days from now...here is how the PnL curve would change...
You still have a chance for profit below $140.60, but you substantially cut the downside risk as evident by a flatting of the profit/loss curve on the upside.
No new adjustment needed right now. Just giving you a flavor of my next management technique, if one is actually needed.
Si vis pacem, para bellum — If you want peace, prepare for war.
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