We are cautiously entering the SPX Weekly Iron Butterfly for May 4 Cycle.

SPX closed today at 1658.78.

SPX 6 month chart

Trade Entry Date: Thursday, May 16

Entry Guidelines:

- The last few weeks have been challenging for non-directional trades; the recent volatility and large price swings has tested the most experienced traders. This article will outline potential entry guidelines for the May 4 cycle, however, I do want to stress that it is not recommended to trade this strategy live until you have experience with adjustments.

- Wait at least 45 minutes - 1 hour after market open before entering. Exact entry time is trader's choice. I sometimes wait until towards the end of the day to eliminate the risk of intra-day price movement.

- Look at economic news for the day. If there is potentially market moving news being announced, do not enter the trade in advance of the news release.

- 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. As of today, this is approximately 11 points according to the calculation on my broker's trading platform.

- I would recommend reviewing the article I posted on April 6 titled "Gaps? Whipsaw?" with additional management suggestions for this position. Link to Articles

Please note that at the time of this article, the CBOE only had 25-point intervals on strikes over 1700 for the May 4 cycle. I have been told by the CBOE that these strikes will be added. Before entering into this week's position, I am recommending that you check the option chain on your broker's platform to be sure the strikes are available that may be needed for an adjustment. If they are not available, do not enter the position.



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 1652.50 - 1657.49 enter the following trade with the Iron Butterfly centered at 1655:


Order Entry: SELL (1) IRON CONDOR.

SELL 1 contract May 4 1655 CALL

BUY 1 contract May 4 1685 CALL

SELL 1 contract May 4 1655 PUT

BUY 1 contract May 4 1625 PUT

CREDIT: As of this afternoon, credit is $18.25. 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 $15.00 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 1665.

Roll Call spreads 20 points:

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

BUY 1 contract May 4 1655 CALL

SELL 1 contract May 4 1685 CALL

SELL 1 contract May 4 1675 CALL

BUY 1 contract May 4 1705 CALL - Be sure this strike is available before initiating the position.


- Downside adjustment if SPX reaches 1645.

Roll Put spreads 20 points:

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

BUY 1 contract May 4 1655 PUT

SELL 1 contract May 4 1625 PUT

SELL 1 contract May 4 1635 PUT

BUY 1 contract May 4 1605 PUT


2) If the price of SPX is between 1657.50 -1662.49 enter the following trade with the Iron Butterfly centered at 1660:


Order Entry: SELL (1) IRON CONDOR.

SELL 1 contract May 4 1660 CALL

BUY 1 contract May 4 1690 CALL

SELL 1 contract May 4 1660 PUT

BUY 1 contract May 4 1630 PUT

CREDIT: As of this afternoon, credit was 17.90. 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 $15.00 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 1670.

Roll Call spreads 20 points:

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

BUY 1 contract May 4 1660 CALL

SELL 1 contract May 4 1690 CALL

SELL 1 contract May 4 1710 CALL

BUY 1 contract May 4 1740 CALL

NOTE: Be sure these call strikes are available before initiating the position.


- Downside adjustment if SPX reaches 1650.

Roll Put spreads 20 points:

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

BUY 1 contract May 4 1660 PUT

SELL 1 contract May 4 1630 PUT

SELL 1 contract May 4 1640 PUT

BUY 1 contract May 4 1610 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 1662.50 - 1667.49, the trade can be entered with the center strike at 1665. If the trade is centered at 1665, all other entry and adjustment guidelines should be modified accordingly for the higher strike.

DOWNSIDE MOVE: If the price of SPX is between 1647.50 - 1652.49, the trade can be entered with the center strike at 1650. If the trade is centered at 1650, 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). It is a trader's choice whether to exit the position earlier than target gain. With the current market conditions, I would recommend exiting the position prior to the weekend at a reduced gain.

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 with entry details.

Trade carefully,

Dot Hazlin