On October 29 with SPX at $2087, I bought an slightly bearish put butterfly in the November 13 expiration, about 2 weeks from expiration.
I bought 20 November 2065 puts, -40 November 2055 puts and bought 20 November 2045 puts for a total debit of .52 1/2 .
The total cost of the trade was $1050 ( 20 butterflies times .52 1/2). I did the butterfly 20-40-20, 1 butterfly would be 1-2-1.
The price of SPX didn’t cooperate with my desires the first week of the trade and went up near the $2114 area and not down in price which I would have preferred.
On November 4, the trade was down around 50% or $500. Why didn’t I take it off and call it a day. I was originally looking for around 50% profit and was willing to lose 50%.
The key reason I stayed in on November 4 with 9 days remaining is because I still had 9 days left and knew I would only need 1 down day to lessen the losses quite a bit.
Once I get less than 1 week left on these directional Butterflies, I start to cut my losses because I’m running out of time. On Friday November 6, SPX hit 2093 and my P and L was reduced to being down only about 5% or $50.
Escaping a Loss
I was running out of time and had only 7 days left.
I could take it off today for a small loss since the market didn’t go my way over the last 9 days, but I thought I would give SPX one last chance Monday or Tuesday to move down.
Monday November 9 we finally had a decent down day in SPX, -20 to $2078. That enabled me to take off the spread at .65. I paid .52 1/2.
Not my desired profit, but much better than a loss. I made $12 1/2 times 20 spreads or $250.
Commissions at $1 per contract , ate up $160, so net profit after commissions was $90 or 8.5% on capital of $1050. The trade didn’t do exactly what I wanted in the 2 weeks I allocated for the trade, but it worked out OK.
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