AAPL Trade

Just before the close I added an AAPL Ratio Butterfly. I believe that there is not much risk on the downside. The RB is designed to be profitable above 575. I don't expect it to go in that direction and am rather looking to harvest profits as we hit first 10% and then 15% on a journey upward. I love butterflies. They can be structured to fit a scenario while at the same time giving enough protection when my view is wrong, mostly still making a profit.

Taking my Profit

The pic below shows a trade I have on: a double butterfly. You can see details of the trade on the pic. There was a long call as part of the trade but I have taken profit on it. The position is showing a profit of almost 10%. The problem is SPX is more difficult to get fills in than RUT and I can't get out without giving some profit back.

While ETFs are easier to get fills in, the commissions are too high. The problem with SPX is that it's still pit traded and has high volume - usually from big players. My small size seems to be ignored. I don't seem to have the same problem with the RUT. While I'm an ex local, getting rid of the pits couldn't happen soon enough for me. Even with the technological aids that didn't exist when I was in the pit, pit traded instruments are a lot less efficient for retail traders than the electronic traded instruments.

Finding Trades

I'm flat on all my trades except the SLV which I'm trying to close. I got out of the calendar part of the trade and now just have the butterfly. I'm trying to sell it at 1.50 which will put me into profit of about 1%+. This recovers the loss on the calendar. Still not a fan of calendars. It's partly me and partly calendars. They are just not as good a risk/reward as butterflies.

Trading options is either keeping all your eggs in the same basket and watching it carefully which is what I did mostly on the floor - I had two guys working for me and each traded just one market. The other way is to create a diversified "portfolio" of trades. Somehow, off floor, I'm not comfortable carrying anywhere near as large a position as I used to carry when I was on the floor. Here I feel like a retail trader when on the floor I was the market, or at least one component of it.

My butterfly trades have been very solid but a black swan is always hiding in the bull rushes so I decided that diversification was the way to go. I day trade futures for a couple of hours and then want to do other things away from my computer. The technology is there to do that with option trading so the challenge was to find enough trades on a regular basis.

After trying a lot of things, I decided to turn to the technology I know. I've set up an algo to look at a list of stocks, ETFs and indexes against which I do option trades. I have two live algos: one uses daily data and the other uses bars drawn every 3 hours. I can do this on both TradeStation and MultiCharts.

I have a strategy live that finds the trades. OptionFlo. The trades are on the underlying and don't get executed automatically. What happens is that I get an email alert when there is a possible trade. It can only happen on the US open and at set 3 hour intervals so I know when I could expect an email if I'm not on a PC.

When I get a mail, I jump onto my iPad or laptop and have a look at the chart on my VPS in the cloud. If I like the chart I put on a trade - a vertical credit spread, Iron Condor or Butterfly. This process can take about 6 minutes as my morning prep gives me a heads up of the possibilities - alerts are not a surprise. I also get emails if the market hits milestones on positions I may need to protect. All exit orders are in the market GTC after a trade is initiated.

I'm using both MultiCharts and TradeStation for OptionFlo. The big advantage with this methodology is that I have a structured and consistent process for finding trades that have been back tested as both high win rate and profitability. The pic below shows the RadarScreen that looks for trades. There are two screens: a daily and a 180 minute. When I get an alert, I click on the symbol which is linked to a chart and I make my assessment on whether to take a trade. The shorter term trades are either a Vertical Credit Spread or a Directional Butterfly. If the markets look like they are staying in a range then an Iron Condor is my trade of choice.

State of Play

Here are a couple of the positions I have on at the moment: a butterfly and an Iron Condor. These, I guess, are bread and butter trades. I'm looking at putting on some bear cll vertical spreads now that there is some topping indications. AAPL is quite hard at this level in case it does break the psychological $700 convincingly. But somehow I think it's all in the price unless iTV or a mini iPad rear their heads.

Below is a learning trade, for me, at least. I trade Calendars badly. I think it's because I never liked trading them on the floor and I usually only made markets in the front month where the volume was in those days.

This SLV position started off as a -10/+10 calendar that went negative. I wrapped it in a butterfly which I do like to trade so I could get to break even on the trade. The way I trade calendars at the moment is to require almost instant gratification. This one went negative too quickly so I did the butterfly adjustment. It's a tiny position as I'm still trying to find a better way of trading calendars but I'm showing the trade as an example of the adjustment.

Rally, Rally, Rally!

See my "I told you so" here in the day trading blog.

Covered All Open Positions

I covered the SPX Iron Condor position at -1.25 after buying it at -2.30 making a profit of over 10% for the trade. I also covered my RUT Butterfly at 2% profit. I am waiting for the ECB announcement tomorrow before I take any more swing trades. I'm smelling a possible rally from here. I say "smelling" because there are only the earliest of technical signs that may not result in the rally coming. However, due to the uncertainty, I'm sure I'll be able to put on bigger size at a better price when I'm confident in what I'm seeing.

Time is on My Side

I try and develop option trades that give me plenty of time to make decisions. Option trades can be much more forgiving of timing and that means not being stopped out unnecessarily - one of the main reasons people lose trading.

My RUT trade is a perfect example. I took some profit yesterday but ended up with a delta/theta ratio that was unfavorable. I saw it and knew it and remarked upon it in yesterday's post. But the good thing was that I could wait until today and see if the market co-operated before I had to make an adjustment.

Well, the market did co-operate and I sold the second butterfly right at the ES support. The total trade made almost 10% on my max Reg-T margin of $102,000 since August 6.

My "problem" now is to get re-invested by finding another trade with a high win rate. Well, no problem really because I just put on a new RUT butterfly for the October expiry. As you can see in the pic, the delta/theta is normal around 1 to 1. If the market moves down to my level, I take profit and if it rallies enough I add another butterfly to the position to make my teepee into a marquee. Having a very specific trading plan for the trade makes it easy to manage in less then 5 minutes a day.

The SPX Iron Condor trade is still cooking. I'm up about 3% at the time of writing this.

Took Some Profit

I took some profit on the RUT trade by taking off the higher butterfly. I'll put it back if RUT rallies to around 820.00 again, depending on context. Pic shows current RUT trade. My delta/theta ratio is a bit high, so I'll need to decide whether to do anything about that today if I can't take more profit on the other butterfly.

State of Play

I have two positions on at the moment: a RUT butterfly play and a SPX Iron Condor. Both were underwater for a couple of days. The RUT trade was a scale in trade and was expected to show an unrealized drawdown. Full details are on the pics.

Both are getting into profit as the market topped here. I have orders in to take profits in the market although I don't expect to have them all filled today unless the coyotes see that they have walked over the edge of the cliff.

Marquee Trading

I've had a few questions about my option trading, so here is a description of what I do. In addition to the very directional trades I make, as I have said before, I also do so called income trades.

These so called income trades are structured like the trades I did on the floor. On the floor, I made my money in two different ways:

• The edge from making markets and selling above fair value and buying below fair value. I made money off the spread I made. The more volume there was, the more I made. We - me and two traders I employed -  traded about 2,500 contracts a day on busy days, usually with a tick edge at least.
• Price erosion due to the passing of time. For this to happen I traded within a very firm structure: short the middle strikes and long the wings. I had to make a choice of whether to be long or short gamma taking into account possible changes in market direction and volatility. We used futures to balance delta when needed. My usual stances was to be short gamma so I could benefit from the erosion. How short of gamma depended on my view of price movement and volatility. Of course I sometimes was wrong in my opinion and lost money.

On the floor, I was to a certain extent at the mercy of the "paper". My job was to take the other side of their trades while at the same time having a directional view, volatility view and strategy.

Since coming off the floor, I have, until the last few years, concentrated on futures trading rather than options, as the technology and liquidity of trading options from off the floor was not something I felt comfortable with. However things changed as option volumes have grown exponentially and I have done well since I started trading options again.

To trade options from off floor, I needed a strategy. I based what I do now on what I did on the floor with the added benefits of:

• being able to choose my trades rather than take the other side of customer trades
• creating a rule based strategy that is objective not subjective and that has been validated with backtesting.
• a written detailed trading plan

My income trades are designed to more than double my money every year. I call the strategy Marquee Trading.

Going forward, I'll show the Marquee Trading trades as well as the more directional ones.

Monday's Trades

I had a busy Monday. Firstly, I put on a Directional Iron Condor trade in the SPX. It was biased a little on the downside as I think the market will back down or go sideways. When I take profit depends on how fast the market is moving and what adjustments I need to make.

As you can see, the position went into a small profit fairly quickly as the market moved down after I put the trade on. It's about a $15,500 Reg-T margin and I can earn between 10% and 30% during the next month based on the $4,600 credit I took in when I put the trade on.

None of yesterday's trades were triggered. Markets seemed to be inside the previous day's range. I'm looking at them again today.

Possible Entries Today

I did my analysis and I have 4 new possible entries today. Whether they trigger or not will depend on the market. For the BUYs I want to see strength and for the SELLS I want to see weakness. I have alerts enabled that will send me an e-mail/SMS when and if any of my levels are penetrated.

I'll post what I have done tomorrow into the ACTION column. The trades will use options, as it gives me an added edge. Not only do I feel that I am able to profit from the direction, but I can profit even if the market goes sideways and/or a little higher. I also have time to adjust the trade to avoid a loss.

Vertical Credit Spread or Broken Wing Butterfly

One of the trades I do is picking tops and bottoms in a swing move. I don't have to be too good at this if I use the right strategy and the math works.

Once I have identified the trade, I need to pick the strategy. This post is looking at a sell of the SPX yesterday. I identified the top and decided that I would use the weekly SPX as the vehicle. My next job was to choose the strategy.

Below as two pics. The first one is the VCS (vertical credit spread) where I sell, in this case, a CALL and buy a call 2 strikes further out. The second pic is the BWB (broken wing butterfly) where I sell 2 CALLS of the same strike as I did in the VCS and bought the CALL the next strike down as well as 2 strikes up.

Let's look at the math.

The VCS has a risk/margin of about $545 with a max possible profit of $453. The BWB has a risk/margin of about $355 and a probable max profit of $141. I say "probable" because there is a small chance that the price will expire at the short strike and provide a windfall of about $550.

Say I have $10,000 to put into the trade.

I can trade 10000/545 of the VCS = 18.35 sets.

I can trade 10000/355 of the BWB = 28.17 sets

The VCS has a max poss profit of 18.35 x 453  = $8312 with a probability of 54.4% of making it.

The BWB has a max prob profit of 28.17 x 141 (ignoring the windfall) = $3972 with a 56.5% probability of making it.

I have another alternative: the 1420/1430 VCS.

This variation has the following stats:

12.38 sets per $10,000, $808 risk/margin and $190 max poss profit with a 77.4% probability of making it. By the close I was 2% into my profit.

The considerations about which to use include:

• Probability of success
• Ease of adjustment
• probability of the windfall (I can maybe widen the price range of the windfall area)
• Ease of getting a fill 

On this occasion, I took this last variation. I wanted that higher probability of profit.  By the close I was about 2% into profit. I do many of these trades as you will see once I start posting these trades before the open - begins Monday.

The weekly options are options on steroids as they are so close to expiry when Gamma is wild. Even when I have an adjustment plan - difficult with weeklies - I assume for risk purposes that I have to exit on the basis of hitting a maximum loss. My math has to be satisfied with a win rate that takes the probable and probability of profit and max loss into account to give me a good return every year.

Vertical Credit Spreads

Those following the trades in my previous post about Vertical Credit Spreads should see how nice a trade they can be.

The trades went into profit straight away as the market moved in a direction faourable t the spreads, which was the whole idea. However, had I not been nimble enough or been too greedy to take profit, even though the market rallied in subsequent days, there was still profit and time to take them off.

I will be showing more of these very directional trades each week using both vertical credit spreads and broken wing butterflies.

More Specific Trades

I do quite a few trades every day as part of the way I diversify risk. I'm going to put more structure into this blog by posting some more specific directional trades, as well as a monthly income type trade with a directional bias.

Yesterday, my aim was to put these trades on:

They all filled (at mostly different prices) except the KO, which did not fill- but I am still working it. I'm trying to earn about 15% on my margin and stop myself out with a new high unless price is rejected there.

In about a week or so, when I get back to France after being at the Olympics in London, I'll start posting these before the U.S. markets open. Then people can watch the trade unfold as the market makers try and get orders filled at their price while I try and get a mid price fill with the time constraint of the market moving.

Out of SPX

I took my profit on the SPX. See the pic. I'd been in the trade long enough and I took a 6% profit and re-invested my margin in another trade. By the close the trade would have been down. My profit taking was more good luck than good management,  or maybe I saw something that I didn't know I was seeing. Anyway, if a trade is making a reasonable profit and looks like stalling then it's better to grab the profit than give it back.

Updates AAPL and SPX

I scratched my AAPL trade (broke even except for commish). My idea of a better reception for the quarterly news was wrong. What was good that even when I wasn't right, I didn't lose on the trade. Options are a great vehicle.


The SPX trade is still open. As you can see from the risk graph below, I'm almost at my 10% profit, but not quite. I've been in the trade since July 17 and would like to get out now, so I might accept 8% rather than 10%. I'll see how the day progresses.

I'm planning on putting on a major RUT butterfly today or tomorrow. Major due to its size and type. I'm going to scale into the position if the market co-operates. More details when the first leg is on.


Meanwhile, I'm heading to the beach this morning as it's going to be a scorcher here in France. More vistors arriving here tomorrow. I'm only day trading when I have time and letting Flo, my algo, do the daytrading most of the summer and these option trades only need looking at once a day. Freedom!

AAPL Losing Trade, So Far, SPX In Profit

So far, the AAPL trade from yesterday looks like a losing trade. The numbers last night caused a late sell off in AAPL. I'll manage the trade and try to get out at break even or a loss if the market doesn't allow that.

My SPX trade has almost hit a 10% profit and I will be looking to take it off at 10%.

I'll post the results.

Apple Earnings Spec Trade

I bought a Broken Butterfly on July AAPL. I BOT +590 PUT, --585PUT, +575PUT. I'm banking on either a good reaction to the earnings report tonight or one that doesn't take out my short 585 PUTs. I've traded July as they expire on Friday.


This is a pure speculative trade and I'm risking a maximum of just a bit under $10,000 and I can make 28% on the trade. The maths of this trade only work with the high win rate I have with them.

Made to Measure

 I believe that by having a directional bias I am able to better pick a strategy to use. I have three variations of butterflies and condors that I can choose from. If I want to be very directional then there is the Vertical Spread, but this has more risk and a lower win rate if the directional bias is wrong. With my butterflies and condors I am profitable in most cases, even if my directional bias is wrong.


It took me two days to get filled on this Iron Condor. +1425V/-1415C/-1255P/-1245P. I'm showing it as a 10 lot trade with margin of less than $10,000. I received a credit of £1.80 or $1,800 to make this trade. My goal is to keep as much of this money as I can between now and when I take it off before expiry which is in 32 Calendar days.


As you can see in the software, the position has over a 78% chance of making money, even if I don't adjust it. I'll use some of the $1,800 to make adjustments to the trade if I need to. The high of the ES hit a daily FavFib area and I expect a pullback within a day or two. This is one of four criteria I have in order to make this trade. I'll take the position off if I make 10% on my margin or about $900 per 10 contracts. I have a specific trading plan to manage the position until then, as the market unfolds.