I've received some great questions from readers that I want to share with you today.
The first question was regarding the RUT monthly trade:
I would like to see your winners and losers for the last six months.
Below are the results for the monthly RUT Iron Butterfly since I began trading it in December 2011. Please note that I did not trade this strategy during the first quarter of 2013; I was analyzing shifting more capital into the shorter term trades. However, I have now decided that due to the consistent, positive results, the monthly RUT trade is now back in my regular trade plan in addition to the weekly.
RUT Iron Butterfly Results
The other questions are about the SPX weekly trade:
I used your idea this week, worked well - hit target of $150. I wanted to know how you feel about using more contracts; thinking of selling maybe 3 to open, if hit target buy back 2 and hold 1 for more gains.
With regards to position size, unless you are a very experienced trader with weekly options, I do not recommend increasing the size until we have had to go through a week with adjustments. Since I started posting my trades, no adjustments have been required. I will continue to post results based on one contract; as increasing in size will vary from trader to trader, depending on risk tolerance and account size.
My thoughts on closing some of the position and keeping one on for added gain? I've done it, but it is not really recommended. Because this is a weekly trade with such a short time duration, added gains can evaporate very, very quickly the closer to expiration you get. I've learned from experience that the key to ongoing success with this trade is to get out with the targeted 5% and move on to the next week.
Another great question was regarding adjustments on the SPX weekly trade:
It would be interesting if you could explain the roll of the SPX weekly when trade moves against one. What is the general cost of the roll, do the numbers change in contract size, etc.? Maybe just showing the March 1 trade that had a roll in it would be interesting to see.
When it is necessary to adjust the SPX weekly, the costs vary, depending on whether it is a call roll or put roll, volatility, and how much the market has moved against the position. In general, the costs is a "per contract" debit to make the adjustment. Also, because the Iron Butterfly is negative delta by nature, call rolls to the upside are more expensive than put rolls with a downside move. As requested, I'll use the March 1 trade as an example.
Original position: Call Spreads -1510/+1540, Put Spreads -1510/+1480
Price of SPX moved to 1500, our adjustment point. This resulted in the planned adjustment, rolling put spreads down 20 points. The cost for this 20 point roll was 5.00 per contract.
New position: Call Spreads -1510/+1540, Put Spreads -1490/+1460
To compare this with a call roll to the upside, I have had to pay as much as 12.00 or more for a 20 point roll. This is one of the reasons we seek as close to a 1:1 risk/reward when entering the trade (15.00 credit); to maintain enough credit to make necessary adjustments and still reach target gain.
These are all terrific questions and I thank everyone for your feedback! Trade recommendations for the April 2 SPX weekly cycle will be posted tomorrow. Because of the monthly Non Farms Payroll news being released Friday morning, this trade will not be entered until after the news.