Options Adjustments

[lemondew]

This Thread is regarding how we can manage all adverse/worse scenarios in our strategy through adjustments. Just giving tips no real examples. Request all seniors to give their inputs.

Assumptions
1) We do non directional trade and donot understand technical analysis.
2) We calculate theta, vega and act accordingly.

We go through various strategies 1 by 1
Strategy 1: Iron butterfly

Nifty at 7000
Sell call 1 lot 7000
Sell put 1 lot 7000

buy call 1 lot 7300
buy put 1 lot 6700

 

[lemondew]

Adverse Scenario
1) Nifty reaches 7180 and we are on loss. Threatens to break 7300.
Solution:
a) We can use munde_77 technique which he explained in his threads http://www.traderji.com/options/91666-thoughts-trades-options.html. A variation of that

Buy back 7000 put at profit. Sell 7100 put.
=> If nifty comes back to 7100 from 7180 we gain in 7000 call. We loose in 7100 put. But delta is in our favour as ITM delta > otm delta. We close all positions in profit.

=> If nifty further moves away to 7210 we can again buy back 7100 put sell 7150 put. Tried to balance such that the gains if nifty reverses is always more than losses. Assuming no event days and nifty max moves around 70-80 points a day.

We go on doing that this till nifty reaches 7300 after which we close the position.

b) We can also do a small variation of technique a) by selling 7150 put and simultaneously buying 6850 call. So downside is protected. We can do this till nifty reaches 7300.

Any other adjustments you think for adverse scenarios in iron butterfly please explain.

 

[Somatung]

@Lemondew

There are quit a few ways to trade butterflies. Probably you know that by your self. So I do not value any word about what you posted or will post.

That's not the problem. The problem is: If there is just one way not understood in dept, what does it make sense to show all the other ways how butterflies can be traded?

Why not stay for the moment by what you posted? Why not doing end of day analyzes with any matrix and numbers you gathered during the day and discuss what has been useful and what has not been useful in your post?

Or is the main idea in this thread to collect as many ideas as possible, regardless if you ever traded those other ways or not?

By the way: Good initiative and I wish you in advance all the best with this thread. Take care and enjoy your weekend

 

[lemondew]

Thanks for your wishes. First of all sorry for the previous arguments I had with you on infy straddle thread. I was really new on options then and just started trading. That was well written by you. Now I been trading options since then and may be know a little more.

Lets go your way

"The objective is may be to earn lets start with a modest 2 to 2.5 percent on investment of say 45000 for doing 1 iron butterfly "

"Or is the main idea in this thread to collect as many ideas as possible, regardless if you ever traded those other ways or not? "
Would not mind knowing list of ideas. Please share. We can back test all of it for real adverse scenarios and then find out which one can come out with no or minimal loss and still have high probablity to earn 2 percent profit.

Open to all suggestions. Treat this as your thread. Lets only not get into directional trading.

Thanks

@Lemondew

There are quit a few ways to trade butterflies. Probably you know that by your self. So I do not value any word about what you posted or will post.

That's not the problem. The problem is: If there is just one way not understood in dept, what does it make sense to show all the other ways how butterflies can be traded?

Why not stay for the moment by what you posted? Why not doing end of day analyzes with any matrix and numbers you gathered during the day and discuss what has been useful and what has not been useful in your post?

Or is the main idea in this thread to collect as many ideas as possible, regardless if you ever traded those other ways or not?

By the way: Good initiative and I wish you in advance all the best with this thread. Take care and enjoy your weekend

 

[lemondew]

If we can tackle the wild moves scenario then I am sure we can manage the ones where is no movement.

 

[Somatung]

Thanks for your wishes. First of all sorry for the previous arguments I had with you on infy straddle thread. I was really new on options then and just started trading. That was well written by you. Now I been trading options since then and may be know a little more.

Lets go your way

"The objective is may be to earn lets start with a modest 2 to 2.5 percent on investment of say 45000 for doing 1 iron butterfly "

"Or is the main idea in this thread to collect as many ideas as possible, regardless if you ever traded those other ways or not? "
Would not mind knowing list of ideas. Please share. We can back test all of it for real adverse scenarios and then find out which one can come out with no or minimal loss and still have high probablity to earn 2 percent profit.

Open to all suggestions. Treat this as your thread. Lets only not get into directional trading.

Thanks

@Lemondew

With due respect to you, it is not about my way. It is about your way of trading an Iron Butterfly and thanks for your kind words. If you have any advanced option matrix you use to trade your market with, you will be able to test your very personal ideas in absolute dept and in any details in any market you want to trade them by your self. For this testing you do not need me. If you need some basic ideas you want to test, here a post from my option thread I did in the past: http://www.traderji.com/options/66266-option-trading-danpickup-6.html#post648489 If you only want to trade this Iron Butterfly's with STDV and implement them at once, then that is your personal choice.

Take care

 

[lemondew]

Can u suggest what is this advanced option matrix is. How do u generate it. I just apply adjustment strategies to manage delta. Just check assuming vega remains the same how things would work in various underlying values using schooles options calculator. My method is a simple do as you see.

@Lemondew

With due respect to you, it is not about my way. It is about your way of trading an Iron Butterfly and thanks for your kind words. If you have any advanced option matrix you use to trade your market with, you will be able to test your very personal ideas in absolute dept and in any details in any market you want to trade them by your self. For this testing you do not need me. If you need some basic ideas you want to test, here a post from my option thread I did in the past: http://www.traderji.com/options/66266-option-trading-danpickup-6.html#post648489 If you only want to trade this Iron Butterfly's with STDV and implement them at once, then that is your personal choice.

Take care

 

[amit44]

@Lemondew

With due respect to you, it is not about my way. It is about your way of trading an Iron Butterfly and thanks for your kind words. If you have any advanced option matrix you use to trade your market with, you will be able to test your very personal ideas in absolute dept and in any details in any market you want to trade them by your self. For this testing you do not need me. If you need some basic ideas you want to test, here a post from my option thread I did in the past: http://www.traderji.com/options/66266-option-trading-danpickup-6.html#post648489 If you only want to trade this Iron Butterfly's with STDV and implement them at once, then that is your personal choice.

Take care

.

 

[lemondew]

Moving ahead
Through solution a) we can cannot gain our 2 percent in scenario where nifty continues to move up.
So if we anticipate upmove to deal with that we can buy an extra OTM call. In this case if nifty continues to move up. You gain in an extra call thereby still making your 2 percent profit. If nifty continues and your OTM comes to ATM.

 

[Somatung]

Can u suggest what is this advanced option matrix is. How do u generate it. I just apply adjustment strategies to manage delta. Just check assuming vega remains the same how things would work in various underlying values using schooles options calculator. My method is a simple do as you see.

@Lemondew

If you implement an Iron Butterfly at once with no directional leg in plays, your adjustments on the break even side is fine. Nothing to ad to this. Option trading can be quit simple and should be kept simple. So nothing wrong with your method. Even then: But this does not mean that other ways of option trading, specially leg in and leg out, are much more complicated. Leg in and leg out is a bit more related to directional trading and it is a bit more dynamic then the all at once implementing approach. As simple as that and nothing new to you. Even you use the leg in and leg out approach in your shown adjustments, which are directional trades at those moments.

Now if you still want to go/test some other ways of implementing an Iron Butterfly, which also include directional plays, then it is to recommend to test this ways in advance before doing them live in the market. This will give you a certain idea about what you can expect from it. For this testing it is of help to have some kind of software (This at least counts for me, but must of course not count for others. Some are happy with some simple paper trades and others want to see there risk graphs, the exact price moves in all used strike levels, all the greeks and the daily price movement of the whole trade on each side. Individual choice with individual trading styles. Nothing to value about it). A good help for this testing comes with software which varies from a simple excel sheet to very advanced option trading software. This just to clear this part of my post, as this may gave some confusion.

Moving on with the Iron Butterfly and using the same technique, but doing instead an Iron Condor: Let;s assume you have a swing market in your traded time frame. You have an approximate support and you have an approximate resistance level. Now what would be the problem to implement a put credit spread around support, then wait until the market moves up to resistance and there you implement your call credit spread. This just to give just one simple, other way compare to the all at once approach, to implement an Iron Condor, even in your market and having a bit a better risk profile after doing so. If you have to adjust this Iron Condor, you can do it the way you posted with your Iron Butterfly and you still do it in a very simple and clear way.

I mentioned the Iron Condor, as the risk with leg in through credit spreads is lower compare to leg in through naked, directional put and calls. This is also a simple way to do so, as you can leg in any Iron Butterfly by using even this more risky approach. Any way: You know by your self what you want and this post was just a little add to all what is possible in what ever way options are traded. Dear men:

Take care and have a nice day

@Amit44

Your confusion, if it was build on my post, should be cleared now. If it was build on some thing else, then read once my signatures and you would find the following link: http://www.traderji.com/futures/93308-nifty-bnf-trend-some-super-genius-member-tj-4.html#post955261

Have a nice weekend