Add a pretty big May BWB today!

Steve G

Steve G

Active member
In this elevated ICV environment, I built out this longer term position today. It is a larger position and if you wanted, you could trade along in paper.

It is my trade #1741 in case you want to reference it in the future.

Note that it is a "split" butterfly in order to make it as flat as possible. Part of my thinking here is that after the State of the Union tonight, some of the volatility may come out of the market, but if it does not, I am flat enough to handle some big moves either way.

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Steve, thanks for sharing. Will you be posting updates to this trade? I think it will be beneficial to see how you are managing it.

Let me share some comments on your post.
I assume this is stand alone trade (which I'm quite positive is not, but let's go with this thought). If your main theme is to catch vol drop after the state of the union address, wouldn't it be better to use much shorter dte and place the structure higher up? This is 80 dte so even if vol comes down it will be in short dtes, like up to 7).For vol to affect 80 dte market has to stay calm for long time and to get this structure to work well if shouldn't move much.
I'm not saying it is bad positioning, trade may work well. I just think it will be good for all to exchange thoughts - we may learn from each other.
You are right that prices for flies (and all it's cousins) are good right now, still good prices are not guarantee of success.

(and what ICV stands for?)
 
Marcas said:
Steve, thanks for sharing. Will you be posting updates to this trade? I think it will be beneficial to see how you are managing it.

Let me share some comments on your post.
I assume this is stand alone trade (which I'm quite positive is not, but let's go with this thought). If your main theme is to catch vol drop after the state of the union address, wouldn't it be better to use much shorter dte and place the structure higher up? This is 80 dte so even if vol comes down it will be in short dtes, like up to 7).For vol to affect 80 dte market has to stay calm for long time and to get this structure to work well if shouldn't move much.
I'm not saying it is bad positioning, trade may work well. I just think it will be good for all to exchange thoughts - we may learn from each other.
You are right that prices for flies (and all it's cousins) are good right now, still good prices are not guarantee of success.

(and what ICV stands for?)
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Good questions Marcas and YES, If I were totally playing off of the IV (ICV was a typo) around the SOU message - yes, I would go shorter term for sure, but I really don't like anything less than 14 days personally.

And YES, this is in an IRA and is designed in part to hedge future down moves which will impact my long equity positions, so the is probably the larger reason for being further out.
 
Did you fill it as a BWB and than rolled the lower long or were you able to fill it it as a 4 legged custom order ?
Was it easy to fill ?
What was your fill price ? I am seeing a lot of bouncing so I am not sure what the right fill price would be

How long are you planing to let it go up on the upside before making an adjustment or are you planing to take it off since it no longer hedges your long positions ?
 
I filled it in two separate B-fly orders. I just put out a reasonable price and wait for a fill, I won't chase it.

In my technical analysis of the market (which I will get into in my class), I believe we are in an SPX resistance area again, so I am not really in a rush to adjust it at this point.
 
Steve G said:
I filled it in two separate B-fly orders. I just put out a reasonable price and wait for a fill, I won't chase it.

In my technical analysis of the market (which I will get into in my class), I believe we are in an SPX resistance area again, so I am not really in a rush to adjust it at this point.
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I watch the Bid/Ask bounce around for a few mins and Yes, It can bounce fairly broadly as this is a BIG index. Right now I am watching the bid ask bounce from a $.10 debit to $1.80 debit, so I have entered my price at $.25 debit and if I don't get filled before the last 15 mins of the day, I way work my price up to $.35 or maybe even $.40 - but I also won't sweat it if I don't get a fill.

If you trade these in any size (I am trying to enter a 30 lot right now), Giving up $1.00 on the entry spread just instantly took $3k out of my potential profit - so I will WAIT!

Often if you get a little chart break below a certain point or a brief news blurb about something that might make people more aggressive on their entries, that is when you can get a better fill as give up a little sometimes at those points - you just don't want to be the one giving up the points - and for an entry - there is NO NEED to rush it.
 
Steve G said:
NO NEED to rush it.
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(y)

This is good technique, Steve mentioned.
To find the price sometimes helps to watch neighbor prices along or look at ASKs not MIDs. Once you trade them for a while you get 'the feel' of what a reasonable price might be.
Sometimes, if I see good trade I tend to pay up few pennies (not a $1, this is too much). I also give up faster when I need the trade to be executed. Always testing. With bigger orders you may test the market with a single lot - then you have idea where the market is. Often it is just a luck to get good fill. I try not to put myself into position that I have to pay any price to be executed.
It also may help to see (manually or via code) how the price evolved not in last 15 min but in last hour+.
 
Marcas said:
To find the price sometimes helps to watch neighbor prices along or look at ASKs not MIDs
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That sounds good in principle for one leg but that may be more difficult to watch 3 or 4 legs at the same time and than calculate what the mid price would be before all the number change
Also this may be just an issue with TOS but sometimes there is a bogus number that comes up in the data of one of the legs so that throws off the entire mid price If it's just a matter of prices that are valid that are changing that is one thing but when you throw in some bogus data than you have to wait a while before you get the right data coming in

When entering a trade you have the luxury to wait to get the right price but when it's time to take profit or stop any further losses you don't have the time to wait around On a far out expiration 30-60 DTE with the volatility keep changing when you think you got in at the good price you can see the same trade at a lower price which means the price you think was a good price it could have been better

I guess we just have to take what we can get
 
status1 said:
I guess we just have to take what we can get
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Flip side of that is that MMs will take what you give them.

You are right that there is no sure method, I don't know any, to get objective price before the trade. Liquidity helps. You just need to find 'your way', whatever suits you, and work on improving it with time.
 
Good morning Steve, thanks for your helpful sharing. I wanted to ask you if in your classes you also cover how to set up trading on BFs even in times of low volatility and also how to trade with smaller contract amounts. Thanks
 
AntonioG said:
Good morning Steve, thanks for your helpful sharing. I wanted to ask you if in your classes you also cover how to set up trading on BFs even in times of low volatility and also how to trade with smaller contract amounts. Thanks
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Antonio - yes, we will be covering Butterfly trading in lower IV markets and almost any trade I make can be sized down - but to allow for some flexibility in adjustments - you should at least have on 2 fly's and that could use $5 - $10k in Buying Power. If you need to be smaller yet, you could trade in SPY instead - but the commissions will eat up much more of any gains - so while that will work for practice, it would be more difficult to eek out comparable profits.
 
status1 said:
That sounds good in principle for one leg but that may be more difficult to watch 3 or 4 legs at the same time and than calculate what the mid price would be before all the number change
Also this may be just an issue with TOS but sometimes there is a bogus number that comes up in the data of one of the legs so that throws off the entire mid price If it's just a matter of prices that are valid that are changing that is one thing but when you throw in some bogus data than you have to wait a while before you get the right data coming in

When entering a trade you have the luxury to wait to get the right price but when it's time to take profit or stop any further losses you don't have the time to wait around On a far out expiration 30-60 DTE with the volatility keep changing when you think you got in at the good price you can see the same trade at a lower price which means the price you think was a good price it could have been better

I guess we just have to take what we can get
Click to expand...
I disagree with the part of this statement that you can't wait when exiting a trade. I don't carry my trades anywhere near expiration, and I will lay my exit orders out as GTC's and sometimes let them sit for days until I get the price I want. The AWESOME thing about these fly's is that unless there are REALLY LARGE moves, 100 pts up or down, really does not matter much.
 
Thankyou Steve.
Steve G said:
Antonio - yes, we will be covering Butterfly trading in lower IV markets and almost any trade I make can be sized down - but to allow for some flexibility in adjustments - you should at least have on 2 fly's and that could use $5 - $10k in Buying Power. If you need to be smaller yet, you could trade in SPY instead - but the commissions will eat up much more of any gains - so while that will work for practice, it would be more difficult to eek out comparable profits.
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I was referring to a 25-30k account where of course it would be impossible to trade 30 flies. Thank you . See you soon in class then
 
Steve G said:
The AWESOME thing about these fly's is that unless there are REALLY LARGE moves, 100 pts up or down, really does not matter much.
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Well I see more than 100 point moves in just 1-2 days so personally I would not want to let my profits evaporate just because I want to get filled at a certain price
 
status1 said:
Well I see more than 100 point moves in just 1-2 days so personally I would not want to let my profits evaporate just because I want to get filled at a certain price
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I agree with you that I did not want to carry this over the weekend and I did finally adjust my down $.20 and was filled instantly - so I likely left $.10 per contract on the table - but the trade closed up 7% in 7 days, so no complaints here.

Also note that this trade is just one of 10-12 that are usually on, so while this one had a little -Delta and might get hit a little in an up move, I had other trades that would do a little better in the up move and balance it out for the most part.

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HI Steve, I know this trade is composed to 2 BF's, but essentially you're rolling in 25 puts on the lower wing of a 35 lot BF to flatten your delta. You could do the same thing by rolling out the puts on the upper wing. The lower side approach reduces margin but the upper side increase theta. What is your reasoning for going with the lower side?
Thanks,

Chuck
 
Chuck - as with most options trades, there are 100 ways to do them. I am not totally certain I understood your exact question - so I tried to model the two here so people could see the difference. If I am missing the mark - please model and share what you are thinking, but in the end, either will get the job done:

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