Yesterday I set my monthly SPX butterfly. If you’ve been following my blog then you know that I set one of these trades every month. This month is no different, even though its not ideal to trade a negative vega trade with currently IV at extremely low levels. I have plenty of experience trading butterflies in low vol environments, and one thing that helps my trading is to lower you profit target. A normal month when IV is above 20 or so I will typically aim for 15% margin, but in a typical expo month I’m rarely this bearish. So the first opportunity that I have to exit my position up money I will.
The reason I’m more bearish then normal is simply put, the chart! My view is that we are approaching the target area on the fib retracement, which in turn should be faded. Now the actual fade might last a few days putting the cash back to the 1375-1380 level. I think the mentality of the market right now is to buy dips, so I think that 1375-1380 level might be a decent area to reload or take off bearish bets. But this is a double edge sword, meaning the more bearish I hear things the more bullish I get. But I will rely on the charts for some indication of future direction.
The trade below is the risk profile of my monthly SPX butterfly. My first target for adjustment is 1425, which at that point I will add a put fly and a call fly with anticipation of higher prices.
I’d also like to share a weekly fly that I have been doing with great success the last few weeks. The weekly options that I trade are on SPX, and the strategy that I use is a butterfly. But set-up a bit different then the monthly. Below is a risk profile of my currently weekly fly. Looking at this fly I think someone would suspect that I am very bearish, but in reality I have been trading these weeklies the same for the last few weeks, and all the market has done is go higher. This is a very simple and very straight forward approach to trading a fly. The adjustment is a simple vertical, so basically I will turn this fly into a short put spread.