We're cautious about entering the SPX Weekly Iron Butterfly Entry for May 2.

SPX closed today at 1597.59, getting closer and closer to the milestone 1600 level. We all keep "thinking" it will pull back, but the bulls are still clearly in charge from looking at the chart.

SPX 6 month chart

Trade Entry Date: Friday, May 3

Entry Guidelines:

- The last few weeks have been challenging for the SPX weekly Iron Butterfly; the recent volatility and large price swings is not the best environment for this trade. The last 3 of 5 trading days have seen a move of more than one standard deviation in SPX, in both directions. This article will outline potential entry guidelines for the May 2 cycle, however, I do want to stress that it is not recommended to trade this strategy live until you have experience with adjustments. This is an excellent opportunity to paper trade, or sit on the sidelines for this week.

I mentioned the other day I have another strategy that I have been back testing, a weekly SPX Iron Condor. I will be sharing those results with you early next week, and may enter a live position sometime in May depending on market conditions.

- Tomorrow morning before the bell brings the monthly non-farms payroll report, quite often a market-moving event. For those entering the May 2 Iron Butterfly as a paper trade, it is recommended to wait at least a few hours after the open before entering. Waiting until the last hour of the day can eliminate much of the intra-day price movement.

- If the price of SPX moves +/- a one-day, one standard deviation, do not enter the trade until the movement is less than a one-day, one standard deviation. If it does not settle down to be less than a one standard deviation, do not enter the trade. As of today, this is approximately 12 points according to the calculation on my broker's trading platform.



Trade entry details are outlined below with 2 price ranges for entry as of the close today:



1) If the price of SPX is between 1592.50 - 1597.49 enter the following trade with the Iron Butterfly centered at 1595:


Order Entry: SELL (1) IRON CONDOR.

SELL 1 contract May 2 1595 CALL

BUY 1 contract May 2 1625 CALL

SELL 1 contract May 2 1595 PUT

BUY 1 contract May 2 1565 PUT

CREDIT: At the close today, credit is $17.95. This most likely will not be the credit at the time of entry, however, it can be used as a guideline for entry. Enter at this credit, or higher if available. Entry at a lower credit is acceptable. However, if the credit is lower than $14.50 do not enter the trade.



Position Adjustment Trigger Points (if SPX moves +/- 10 points from center strike). Note: Try to wait 45 minutes - 1 hour after market opens before making any adjustments. Watch key levels of support or resistance before adjusting. If SPX is at, or hovering around, support and resistance levels, it may be prudent to wait a bit longer to adjust. Many times the first hour's price movement is not reliable. This is something that you will get a better sense for as you learn this trade. Remember, trading is "an art and not a science."


- Upside adjustment if SPX reaches 1605.

Roll Call spreads 20 points:

Order entry for adjustment: BUY (1) CONDOR using all CALLS.

BUY 1 contract May 2 1595 CALL

SELL 1 contract May 2 1625 CALL

SELL 1 contract May 2 1615 CALL

BUY 1 contract May 2 1645 CALL


- Downside adjustment if SPX reaches 1585.

Roll Put spreads 20 points:

Order entry for adjustment: BUY (1) CONDOR using all PUTS.

BUY 1 contract May 2 1595 PUT

SELL 1 contract May 2 1565 PUT

SELL 1 contract May 2 1575 PUT

BUY 1 contract May 2 1545 PUT


2) If the price of SPX is between 1597.50 - 1602.49 enter the following trade with the Iron Butterfly centered at 1600:


Order Entry: SELL (1) IRON CONDOR.

SELL 1 contract May 2 1600 CALL

BUY 1 contract May 2 1630 CALL

SELL 1 contract May 2 1600 PUT

BUY 1 contract May 2 1570 PUT

CREDIT: At the close today, credit is $17.20. This most likely will not be the credit at the time of entry, however, it can be used as a guideline for entry. Enter at this credit, or higher if available. Entry at a lower credit is acceptable. However, if the credit is lower than $14.50 do not enter the trade.



Position Adjustment Trigger Points (if SPX moves +/- 10 points from center strike). Note: Try to wait 45 minutes - 1 hour after market opens before making any adjustments. Watch key levels of support or resistance before adjusting. If SPX is at, or hovering around, support and resistance levels, it may be prudent to wait a bit longer to adjust. Many times the first hour's price movement is not reliable. This is something that you will get a better sense for as you learn this trade. Remember, trading is "an art and not a science."


- Upside adjustment if SPX reaches 1610.

Roll Call spreads 20 points:

Order entry for adjustment: BUY (1) CONDOR using all CALLS.

BUY 1 contract May 2 1600 CALL

SELL 1 contract May 2 1630 CALL

SELL 1 contract May 2 1620 CALL

BUY 1 contract May 2 1650 CALL


- Downside adjustment if SPX reaches 1590.

Roll Put spreads 20 points:

Order entry for adjustment: BUY (1) CONDOR using all PUTS.

BUY 1 contract May 2 1600 PUT

SELL 1 contract May 2 1570 PUT

SELL 1 contract May 2 1580 PUT

BUY 1 contract May 2 1550 PUT

Please note: My goal in the above guidelines is to give enough detailed instructions for trade entry within the 2 prices ranges I felt would be likely for SPX tomorrow. However, if SPX is outside of these two ranges, following are alternate trade recommendations for entry .

UPSIDE MOVE: If the price of SPX is between 1602.50 - 1607.49, the trade can be entered with the center strike at 1605. If the trade is centered at 1605, all other entry and adjustment guidelines should be modified accordingly for the higher strike.

DOWNSIDE MOVE: If the price of SPX is between 1587.50 - 1592.49, the trade can be entered with the center strike at 1590. If the trade is centered at 1590, all other entry and adjustment guidelines should be modified accordingly for the lower strike.



TARGET GAIN AND MAX LOSS TRIGGER POINTS:

Target Gain: $150, which is 5% of maximum allocated margin ($3,000).

Maximum Loss: $300, which is 10% of maximum allocated margin ($3,000).

Your total "risk" in the position is the maximum allocated margin.

Trade is exited if either of these gain/loss conditions are met.


A trade update will be posted this weekend.

Trade carefully,

Dot Hazlin