As sarcastic as you are...realize what position you are in and have a deeper appreciation of today's move and the overall strategy.
First, today's move is a 2 standard deviation move of SPY. There is only a 4% chance of a 2 SD move at any given time. So, the probability was low that it would go up this high. Realize that is only a 2% chance of moving up 2SD and a 2% chance of moving down 2 SD. So there was an equal chance that SPY could have dropped 1.7% or (~2SD) today, based on probability.
That is what you got yourself into. You played a directional play. Currently we are down. Never get in a directional position unless you have a sense, either based on Technical, Fundamental or Market Sentiment analysis.
I don't regret this position...not yet. Nor am I going to close the position.
That is why we set up the butterfly spread as we did. We created a spread with a great reward:risk benefit. The risk is 100% of capital, the maximum reward is 467% of capital, with a large landing platform ($132 - 139) at expiration to capture at least 100% return.
Think about it. Given any security, there is a 50% chance it will go up, there is a 50% chance it will go down. If it goes down, you lose up to 100%. If it goes up, you profit up to 467%. It is a probabilities game. If you profit 1/2 the time on these spreads, there is a great probability that the profits will far outweigh the gains.
So, you can't be critical of this strategy, or any strategy, with only one event (N=1). If you play a similar directional spread each month for 1 year, you would probably profit 6 times and lose 6 times. But, if you are smart enough to close a losing position before 100% loss or at least hedge the out of control Delta, then you can buffer your losses.
This spread is still in it's infancy. I have only had the spread on 7 days and there is still 43 days until expiration. A lot can happen in 43 days. In these spreads, as long as your profitable months far outweigh you losing months, the strategy is sound.
Also, realize that the butterfly is a Net Negative Vega strategy, so if the market goes up, IV goes down, and the overall position is hedged on the upside by the VEGA. IV change on SPY is -10.73% right now. That has buffered your current unrealized loss. That is why I set a Butterfly as a downside directional play, and would probably set a Calendar spread as an upside directional play. A Calendar spread has a net Positive VEGA. If I set a Calendar for an upside move and the position moves down against me, the IV goes up, and my PnL is hedged with the VEGA.
Currently, the market did move up secondary to European banking news. Historically, September is one of the worst months for the stock market. I think the directional "gamble" was sound.
I will say today's move has cut through some technical resistance. So, I might actually cut the Net delta in half. I have my maximum loss set at 50%, which is around the $145.40 mark. That is still a $2 upside buffer. There is a off-balance of my upside max loss and my downside max loss.
Here is a current profit curve of my position...
One strategy that I might employ is to buy a 1 contract Oct 138 SPY Call with a delta around 80. My current net Delta on the position is ~166. Buying this one contract would cut my Net Delta in ~1/2. See the PnL of the potential management...
As you can see, you have protected your losses on the upside move. You have created a situation where the stock needs to drop lower to bring it back to Breakeven, but this is what you need to do when opening these contracts. It keeps you in the game. (see the light green curve that slopes up relative to the original pnl curve line). As the position matures, your hedge will become less and less helpful. But, it would take 14 trading days from now just to give you a chance at 50% loss. This would inject a lot more capital in to the position, but doesn't cut your maximum loss substantially. You could also buy a Call debit spread and achieve similar results.
Options trading is complex and not for the faint of heart, nor the naive. Be careful putting real money into a position that you don't have a strong handle of all of these principles.
Another thing that may be killing you is your commission. When you only play a 1 contract spread, it erodes your profit potential much more than playing a 15 contract spread. Plus, a 1 contract spread makes it more difficult to manage, because it is more difficult to hedge losing positions. Maybe a reason for you to papertrade these positions until you feel more comfortable.
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