SPX May 1 Bearish Butterfly Update; Position May Need Adjusting
I apologize for any confusion the Weekend Update posted yesterday may have caused concerning the "Test Kitchen" Bearish Butterfly trade. With SPX closing Friday at 2022, the position may need an adjustment next week unless we see a significant pullback.
A summary of the current position is below:
New Test Kitchen Trade; SPX Bearish Butterfly
This new trade was entered in Paper Money Wednesday, February 24. Position details are below:
- BOUGHT 3 SPX May 1 1915 Put, 73.40 debit..
- SOLD 6 SPX May 1 1875 Put, 58.10 credit.
- BOUGHT 3 SPX May 1 1825 Put, 43.40 debit.
Order was filled as a "Butterfly" for $.60 net debit(all three legs) per butterfly.
Margin/Risk is calculated at $1,000 per unit, plus the cost of the butterfly,
Margin/Risk for this trade: $3,180.
Target Gain: $500 for the 3-unit position
Max loss: $750 for the 3-unit position
As stated in the guidelines published February 17, the target gain and max loss may be modified depending on length of time in the trade, etc. Since this is a new trade being incorporated into the plan, we will evaluate progress as time goes on.
Below is the risk graph of this position as of the close Friday:
SPX May 1 Bearish Butterfly:
There is no urgency as there is still a lot of time before expiration. But the position may be tweaked a bit next week to raise the expiration T +0 graph. The adjustment I will be recommending is to roll in the upper and lower wings of the butterfly. This adjustment can be done with one order, "Sell Condor", all puts, as follows:
- SELL SPX May 1 1915 Put
- BUY SPX May 1 1895 Put
- SELL SPX May 1 1825 Put
- BUY SPX May 1 1845 Put
The adjustment will be for a net credit (all four legs), so it does not increase the margin in the trade. The quantity rolled will depend on the market at the time the adjustment is made.
An update will be posted next week if it is recommended to adjust the position.
As always, trade carefully and stay keen on your risk management.