As I stated Tuesday, “So much for the market bouncing. That is what I love about these trades though, you can be completely wrong and still make out. I entered the May method 15 and adjusted the May 55 day trade today. I must say that butterflies are way over priced right now and I was not happy at the prices paid for these….” Since then, 3 unfortunate things happened.
First, The market did bounce as expected….Unfortunately it was just a day late and I had already entered the method 15….bearish and I adjusted the 55 day position to the down side.
Second, butterfly prices were outrageous. I knew I significantly overpaid for both the adjustment and the new position. This is evidenced by the large drop in value of the positions as soon as the market started moving, which brings up the point about the Vega number on the analyze graph. Many traders believe that, since butterflies are a negative Vega trade and the volatility dropped, the value of the position would go up… correct? This is not necessarily true. The reality is that butterflies are cheaper when the market is moving quickly and more expensive when the market stalls. I bought this position when the market was range bound between 815 and 835. As soon as it was clear that range would be broken, the price dropped about $2.00 for a 50 point butterfly even when the price movement was calculated in. ThereforI prefer to buy when the market is moving and sell when the market stabilizes.
Third, the market had a larger than normal gap which meant I could not adjust when I wanted to.
Despite all these factors, however, the trades are still doing fine. I did make adjustments to both the trades yesterday morning.
On the 55 day trade, I rolled the 810 to 830. The current position is below:
On the May method 15, I added and 820/870/920 call butterfly. The position is below:
That’s it for now,