Trade 6 closed. It would have been a bit more profitable had I not made the adjustment. Also got a horrific fill on the closing fly. I wasn't watching the market at the time SPX hit my closing price target and my order triggered at 1.50. Had I been there to place the trade manually, I could have easily squeezed another .5 - .75 out of it. Trade 6 Closing order: tIP SOLD -1 BUTTERFLY SPX 100 (Weeklys) 31 JAN 20 3280/3265/3250 PUT @1.50 CBOE +$203.76 Profit. Starting Balance: $1001.75 Current Balance: $1782.51 Cumulative PnL: $780.76 = Account up 77.94%
Here's the trade from start to finish to make things easier to understand with the condor. Pay attention at the "TO OPEN" and "TO CLOSE" so you can see how I've adjusted the legs of the butterfly. I started with the 3290/3265/3240, narrowed the fly 10 points with the condor so it left me with 3280/3265/3250. Then closed the remaining position out.
Can we get 4 winning SPX trades in a row? Gotta love the elevated vol, allowing me to place a 25 point wide put fly for 1.25. Taking another bearish shot next week. With todays down move, vols expanded quite a bit but we're still staying within the markets expected movement. This is an efficient market, to the upside and the down. In the short term, I believe the Coronavirus will get worse before it gets better and the market will follow. Trade 7: BOT +1 BUTTERFLY SPX 100 (Weeklys) 7 FEB 20 3195/3170/3145 PUT @1.25 CBOE
Negative. Trade 7 expires worthless. -$129.52 Loss. Starting Balance: $1001.75 Current Balance: $1,652.99 Cumulative PnL: $651.24 = Account up 65.01% Trade 008 tIP BOT +1 BUTTERFLY SPX 100 (Weeklys) 14 FEB 20 3300/3275/3250 PUT @1.60 CBOE Big uptrend this week, the market takes back all losses from the previous dip. Gonna try for another small pullback this week. I'll be closing this trade if the market pulls back around 50 points from Friday's close at any time between now and expiration
Trade 8 expired worthless. -$162.08 loss Starting Balance: $1001.75 Current Balance: $1490.91 Cumulative PnL: $489.16 = Account up 48.83% I'm kicking myself this week. One of the cardinal rules that I always intend to follow with this trade is when choosing direction, I always follow the previous weeks trend. I went against that rule which resulted in a loss. Had I stuck to the plan I would have centered my butterfly at 3380 and closed the fly Wednesday for a ~2x winner. Live and learn. My thought process was we had a significant down move in the market caused by the Coronavirus news (2 weeks ago). Last week the market rebounded entirely making up all the losses and pushed new all time highs. Instead of following the trend and trading bullish this week, I took a bearish shot thinking that we rebounded too far too fast. Vol was still pumped up and even though we were pushing new highs, it made sense we would have a small pull back. My thought process on current market conditions: The market place is ignoring all risks and keeps chugging away to the upside. Vol is still elevated although its falling closer to its mean. At least in the short term, we've moved away from the efficient environment we've seen for the better part of 2019. January 16th was the beginning of this transition from efficiency to inefficiency where realized vol is consistently outpacing implied vol on a week to week basis. DO NOT SELL PREMIUM right now unless you know what you're doing. Market conditions were similar in August 2019. The only difference is August we had volatility to the downside. Right now we're having volatility to the upside. I skipped the trade this upcoming week due to the market holiday. Another rule I have is I never trade during weeks with market holidays. My plan this week is to take a step back and evaluate where the market moves. Friday I'll continue on and trade accordingly.
Trade 9: Taking another downside shot. Some may consider it shorting into the hole, but it’s more of a risk to reward play for me. The downside implied volatility skew is extremely favorable on the Put side. I’m betting we will continue last weeks downward trend, paying $155 for a max win of $2500. I’ll be looking to close or adjust this trade as soon as SPX hits 3275 Bigger picture thoughts: The market is and has been in a bubble for a while. Probabilities say we continue chugging along to the upside but we have to have an understanding that a 10% correction of 300 point in the SPX will only bring us back to October. I’m still long the entire world in my main account as I have no doubt that long term (10+ years) the market will be higher than it is now. However, conditions are ripe for volatility. The Coronavirus is an ongoing source of news that can act as a catalyst for volatility in the short term. The election is right around the corner which will cause more volatility for the remainder of 2020. The yield curve is inverted with 10 year and 30 year bond yields at all time lows. With half the world already having zero or negative interest rates, fund managers are seeking anything with a yield. Yielding funds have been on an absolute tear to the upside and in many cases low beta stocks are outperforming broad based indexes. Throughout the past year I’ve been slowly allocating more capital into yielding stocks and ETFs such as XLU, PFF, TLT, BND and other asset classes such as GLD and SLV. I would still say we have higher probabilities in the short term we will continue higher but you better believe I’m hedged to the downside in my option accounts.