Options - the next generation - managing butterflies - when good times roll / when bad times come...
π§΅π
Say you bought a simple balanced butterfly spread on 1/5 that looks like this
Its balanced, and theta neutral
Then 1/6 happened (Partaeeee)
You got a near 30% change in every leg.
What should you do - sell it?
Manage it?
Or do nothing?
I would manage it - you can close out that middle leg buying 2calls back, and open 2 new legs that are MORE than what you paid for the top and bottom leg, cover exchange fees and the position now becomes free.
You would do this only if you got a lot of time left on spread
In this case, you are out to march23, 2 more months to manage it.
If you thought the market move was total bunk, well, there is another way to manage it
(and there is a reason i think market move is bunk - second picture). Spy popped and flopped, but price stayed hi. #WEIRD
Ok -thats all great if sky is blue, sunshine, glitter...but thats not what happens every day - what if market went the other way?
We have the same setup, but now options dropped by 30%+
Well, it it happened in the overnite, nothing we can do.
But this is a major part of WHY YOU ONLY DO SPREADS IN A MARKET LIKE THIS
You are out of pocket 100$
After that 30% drop overnite? Meh.
Look at what happened to butterfly now?
You spent 128.
After 30% drop - now you down $20.
Big woop.
But some defense moves if you want
Remember - we got 2 months to work this thing, looking at whats going on w/ spy, my bet is its going to continue to chop around...
But, defense move
a) just sell the whole spread and be done with it
b) change it to a CREDIT spread from a debit spread.
c) just wait and do nothing
b) change it to a credit spread - ez
Now you have a condor credit spread
these options will bleed, but they CAN go the other way.
You buyback 1 of the 385 and sell 1@379.
With the choppyness of these markets, im really not sure id make any move until i saw a clear direction.
If it were me, id prolly take my gains and run (SELL!) - close the position and wait for another extreme position (like EOD FRI or EOD Thurs) to plot a new entry opposite of market.
Notice the MASSIVE chop in the overnight session.
Its just nuts.
If i were down, id set a stop loss and live with it.
But prolly not change my position.
you got 2 months to work it.
Longer dated options would have been better.
Say june or july - the OP manipulation dont work so good out there...
β’ β’ β’
Missing some Tweet in this thread? You can try to
force a refresh
This is gold.
It is inverted.
The lower the line goes the higher the price of gold in USD.
When it takes more USD to buy gold?
Thats a measure of inflation.
2nd chart zoomed out.
ππ§΅
Here is USDJPY (the jPanesa) and US long bond yields.
Notice the striking correlations
On this chart - when the blue line goes up, bond yields go down. When the blue line goes down, bond yields go up.
The higher the blue line goes on this chart? The lower the bond yield. Lower bond yield = new car loans go down, credit card interest rates go down, etc.
Blue line going up = FRENCH TICKER
Its *STIMULATIVE*
Stonk loves when blue line go up.
because jPanesa own so much US debt, they can move bonds with ease. ESP so because the jAnet isnt selling as much long bond - this makes jPans job easier.
They do all of this to control currency - in green.
When the green line goes up the USD gets weaker.
A weaker USD means US exports get cheaper.
Your groceries get more expensi.
Your overseas vacation gets more expensi.
Anything US imports gets more expensi.
US produces dollars, oil, pr0n, movies, weapons and global conflict. There is no culture other than worship of the super wealthy.
jPan controls the finances and jEws control the politiq.
The people can legally squabble online but their opinions dont really matter too much.
ππ§΅
Last week global conflict exploded when Israels continued massicre of the Palestinian people continued with a targeted hit on a Hamas leader. nytimes.com/2024/08/01/worβ¦
This caused volatility in US stonk to explode.
UVIX is 2x long duration vix.