EL TRADES OPTIONS

This blog will show my longer term Swing trades using OPTIONS. I use specific income producing option strategies with a DIRECTIONAL BIAS. Having a directional bias is critical in earning more, even from what are generally called income trades such as butterflies and condors. The aim of my strategies is to give me more than a 66% edge and to provide a greater than 80% win rate within that edge. The blog shows you the trades I make and how I manage them. For my directional bias, I use the same EL methodology as I employ in my day trading that you have seen for years in the original ElectronicLocal blog. Read the disclaimer.

Monday, June 25, 2012

Broken Butterfly

I added a couple of butterflies on Friday: RUT (Russell) and XLE (Energy).


The first pic is the XLE. I put the position on at a credit to me of 0.28. I took it off today at about 0.20. The position I put on is known as a Broken Butterfly -  a trade I like a lot as you only have to figure out where the price won't go, but if it goes there you can still make a windfall profit. I do tend to take profits quite quickly because I don't have a problem finding another trade to put on.




The RUT trade moved considerably in my favour today too. As you can see in the pic below, there is a $33,000 Reg-T margin and I'm up 8% over the weekend. The position is a regular PUT Butterfly and I had hoped to scal into a larger trade. I'm working an order at the moment to exit at a 11.5% profit. I'm the only offer of the butterfly at that price at the moment. I have a few more on than the number in a pic as I run a number of different accounts so I may get part filled with one broker but not another. I don't know why that happens but it does.The kind answer is that one is put on at an earlier time than the other.




If you haven't traded options much and want to follow along, I'd read as much on the web as you can find about option strategies. They are not as complex as they seem although a lot of people add unnexessary complexity. The basis of my option trading is the same as the basis of my day trading: I envision the probabilities and put on a trade that fits. The extra advantage of options is that I don't necessarily have a losing trade if my vision is wrong. I usually need to be vilently wrong for there to be a loss.


I'll report on my RUT trade as it develops.
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2 comments:

  1. AnonymousJune 26, 2012 at 7:42 PM

    Hi Tom,
    Do you always try to put on broken butterflies for a credit?
    Also seeing as you are a futures trader, do you ever do options on futures, for example options on Russell futures instead of Rut. I am guessing the reason is that Rut is more liquid
    Thanks
    John

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  2. Electronic LocalJuly 9, 2012 at 9:26 PM

    John, yes to a credit but can't always do that if I have a very strong view and I want to trade fewer DTE. I find the index options like SPY and RUT very liquid and I can trade close to the mid price of quotes.

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