Reminder of current positions: - 110 OCT SPX 1165/1175 Put Spreads @ $0.55 -100 OCT XEO 530/545 Put Spreads @ $0.65 We have had a nice drop in the indexes due to weather/oil. For now 1200 still looks like a good support point but just in case we break 1200 I wanted a small hedge and possible way to profit from the dip even if my 1175 short strike seems safe. Today I bought 30 OCT SPY 120/117/114 Put Butterflies @ $0.45. If the index does break through 1200 and runs towards my short strike of 1175, I could make perhaps $2.00 or so on the butterfly to offset any adjustments if necessary. It cost about $1,500 to put on and odds are that when I put on a partial hedge the market moves back the other way, so this is good news for you put holders . Phil
I never covered my adjustment points for the XEO but they are tighter than they are for the SPX since the scales are different. First, the XEO has support at 560 and again near 550 so my first warning will go off if the index barrels through 560. Then I will keep a close eye on 550. If 550 is also broken then I will most likely adjust at that point. Phil
"For now 1200 still looks like a good support point but just in case we break 1200 I wanted a small hedge and possible way to profit from the dip even if my 1175 short strike seems safe. Today I bought 30 OCT SPY 120/117/114 Put Butterflies @ $0.45" -- Phil, couple of questions: 1) Why did you go with the SPY fly intead of the usual hegde of buying SPY puts 2) You spent 25% of your SPX IC credit on the hedge. Any rationale or just personal preference? 3) If the market moves up and you no longer need the fly, will you close it out or keep it for future insurance?
Thanks Phil. Another question that may sound "dumb" but it's probably not obvious to some newbies (at least it was not obvious to me until I actually tried it) so it may be useful on this board: why didn't you do the fly in SPX itself?
"Today I bought 30 OCT SPY 120/117/114 Put Butterflies @ $0.45" -- Phil, could you explain a little about how you selected the strikes for the put fly? Why did you center on 117 and not, say, 118? Why did you select a width of 3?
Optioncoach, I really appreciate this thread & have just started following along. I have a basic qs. regarding your butterfly spread. You said you sold 30 Oct SPY 120/117/114 put butterflies @ $.45. In layman's terms, does that mean you bot 15 - 120's, sold 30 - 117's, & bot 15 - 114's puts. Sorry for the simple qs but I just want to make sure I follow you correctly. Thank you for clearing this up. traderanonymous
I used the SPY to hedge because it is cheaper for me to get into given my cash value I am willing to spend on the hedge and ease of getting filled. Also, adding a FLY on the SPX would be messy for me to have my SPX credit put spreads and then SPX puts as part of the FLY all mixed in. I have a personal preference to keep them in separate instruments to track. Remember that it is a personal preference to use the SPY for partial hedging. I am more comfortable going long the SPY for hedges. There is no obvious reason why one would choose the SPY or SPX, it is simply a personal choice. Phil
I wish there was some detailed complex formula how I arrived at it lol. But basically I started with puts at 120 and then looked at butterflies where the middle was around my first short strike. With a short strike at 1175 I looked at the 117 and 118. I went with the 117 for a wider spread. Phil