Trade Summary

  1. This trade is a losing trade and net loss is $558.48. This is the classic case of newbie error: I have had more winning trades with small profits, while the losing trade generated a large loss that almost wiped off all the previous profits.
  2. Lesson learnt:
    • Must put in the IWM Long Call hedge for each of the adjustment Fly. Without the IWM hedge, the rolling up of the Fly will generate larger loss.
    • Too many adjustments. The trade should be closed after 3-4 adjustments and wait for another opportunity for another entry.
RUT had been moving upwards without any retracement from the time I opened this trade.

2 Nov 2016 – Day 1

  1. This trade was opened after the FOMC statement.
  2. The RVX was still high (at about 23) after the statement. Usually when RVX is high, the option premium would be more expensive. However because the high volatility and high spread, I put in the trade with lower end of the price and got filled at 9.50 per contract. The usual price for the same setup at lower RVX (18 or below) is about 10.20-11.20 per contract.
  3. This time I left out the IWM Long Call hedge because the daily chart of RUT still look bearish to me. With the US presidential election coming, the market would be very sensitive, and it seems that it is more sensitive to the downside. Therefore the upside hedge is not needed for now. But because the Butterfly is setup in such a way that the distance to the expiration breakeven line is shorter on the upside, I will review closely and add back the hedge whenever necessary.
Risk profile before the IWM hedge. The purple line moves steeply donwards after 1190.

4 Nov 2016 – Day 3

  1. Instead of continue to move downward, RUT had been climbing up without much resistance during the first half of the trading session and went as high as 1175, which was closer to my adjustment point of 1180. It is time to protect the upside by buying the IWM Long Call hedge (120) that I left out when I opened the trade.
  2. When the price retrace from today’s high. I bought the IWM Long Call hedge to reduced the delta from -12 to -6.3.
  3. Although I think that RUT may move back downward nearing the end of the session, which means the hedge may not be necessary, I decided to still proceed to buy the hedge because it helped improves my psychology. I feel anxious when I see the current risk profile (purple line) is not flat, which would mean my unrealized loss would get bigger if RUT continues to move up.
  4. Now I can go to sleep knowing that if RUT for whatever bizarre reason gap up by 100 points on Monday, my maximum loss would be around 450, instead of 1260 without the hedge.
  5. I will have to do my first adjustment if RUT continues to move upwards on Monday, which is just a day before the US presidential election polling day.
Risk profile after the IWM hedge. Purple line is flatter with reduced delta.

7 Nov 2016 – Day 6 – Adjustment #1

  1. One day before the US presidential election polling day market already seemed ready to gap up like election is over and their preferred candidate has won, although I do not know between Hillary Clinton and Donald Trump, who is the better option. It seems that the market prefers a Clinton win because as soon as the investigation around Clinton’s email saga was cleared the second time, the Futures shot up.
  2. RUT gap up as soon as market opened and added as much as 30 points, RVX stayed above 20. Overall market was also as bullish and stayed bullish until market close.
  3. I waited until around lunch time when the market settled to decide my adjustment strategy. It seems that the market would not retrace, so an adjustment is necessary as RUT already trading at around 1190, 10 points beyond the expiry breakeven point.
  4. But since this is just around the election day and expecting crazy movement, I decided first to reduce my exposure by closing one of the original butterfly (1090/1140/1190) to book a slight loss of -211.04. Then I closed one of the original IWM hedge (120) and book a slight profit of 66.20 to offset the loss. So this trade is now having a nett loss of -144.82. This should be easy to recover if the rest of this trade is manage properly until expiry.
  5. Instead of open another Butterfly today to extend the expiry breakeven line, I opened a cheaper IWM (122) to keep the upside loss lower. So by now, this trade has 2 IWM calls as hedge for one Butterfly, instead of the suggested 1 Butterfly : 1 IWM Call ratio. Reason I did this is I want to keep this trade small until after the election result, then I can decide whether to close for small loss, or adjust it again. One caution to this is that once RUT trades beyond the expiry breakeven point, this trade will become Theta negative.
  6. If RUT decided to trade lower tomorrow, I will buy a cheap OTM Put as protection in case the market decided to tank more than 200 points in one day after the election result.
This is the risk profile after the above adjustment. Keeping the trade size small and the T+0 line as flat as possible.

8 Nov 2016 – Day 7

  1. Eve of election polling day and market inching slowly upwards but flat overall. No action for my Butterfly trade as of today.
  2. If it moves 100 points upwards this trade will have a nice profit of around $500. If it moves 100 points downwards it will have a loss of around -$50, with the loss booked when I reduced the trade size, the total loss would be around -$200.

9 Nov 2016 – Day 8

  1. Election day! As the result coming in, RUT Futures dropped as much as 70 points to around 1125, S&P Futures dropped 120 points to 2028, and DOW Futures as much as 750 points. S&P Futures trading was even halted at one point.
  2. Then Trump won and market started to recover when the election result was clear that most like Trump would win. It has now recovered half the value of this morning drop.
  3. When the market opened, RUT Futures had recovered the loss in the afternoon. RUT opened as if nothing had happened and continued to rally for the first half of the session.
  4. I decided not to put in any adjustment when RUT seems to have the upside strength. If I add in another Fly now as adjustment and RUT continues to rally, I will have to roll up the first Fly probably as soon as tomorrow. Rolling up the first Fly tomorrow with the adjustment Fly would mean booking a bigger loss.
  5. If RUT stays or move lower tomorrow then I will roll the original Fly, booking a smaller loss and continue to wait for expiry day to come.
  6. Note: RVX is steadily dropping, showing sign of less fear.

10 Nov 2016 – Day 9 – Adjustment #2

  1. RUT continued to rally at second half of yesterday session, added a good 40 points to close at 1232. Since I did not make any adjustment, another 15 more points to the upside today and this Fly trade will be trading in the upside profit zone. I can then make the adjustment and booking some profit to net off the loss incurred on Day 6.
  2. RUT traded as high as 1256 and then quickly reversed. Although the Fly now is in profitable zone, If RUT does not move up quickly and continues to trade outside of the breakeven line, this Fly will be losing money through negative Theta.
  3. I decided it is time to close the last of the original Fly (1090/1140/1190) and IWM Calls (120) with a slight profit opportunity. So the nett loss for this trade as of now stands at -146.42 after all the crazy swings.
  4. I then open another Fly with just 10 points below ATM (1190/1240/1290). I chose 10 points because RUT looks like it still has some upside potential towards 1260. Will need to adjust again if it does trade near 1260 tomorrow. The corresponding IWM Long Call (127) is also opened.
The new Fly setup. It is within the expiry breakeven line and Theta is back to positive.

11 Nov 2016 – Day 10 – Adjustment #3

  1. I was travelling this day and at the same time dealing with some family emergency. By the time I was done for the day and back to the hotel room, RUT again traded higher at 1280, beyond the expiry breakeven line. It was already almost 1am midnight, I put in another RUT Fly (1220/1270/1320) as adjustment and fell asleep.
  2. The order was filled while I was sleeping, because of that I did not put in the corresponding IWM Long Call.

Day 13 –  14 Nov 2016

  1. This trade turned out to be more difficult than it supposed to be because it just kept going up and up without because of the election.
  2. It added 20 points again today, right after I made the adjustment last Friday. It was a good decision that I reduced my trading size from the original 2 Flies to 1 on the eve of election.
  3. It is now trading just after the expiry breakeven line but still with positive Theta.
  4. I will wait until tomorrow to see how it goes and whether to put in the third Fly as adjustment.
This graph was capture on 14 Nov 2016. I was not able to update the graph when I was travelling last week. RUT rallied again right after I made adjustment #3 last Friday, and went beyond the expiry breakeven line again.

16 Nov 2016 – Day 15 – Adjustment #3

  1. It is still trading just after the expiry breakeven line but still with positive Theta.
  2. RUT has slowed today. It gained less than 5 points on the opening hour, unlike previous few days where it added close to 20 points once market open.
  3. Added the third Fly (1250/1300/1350) before it is too late for adjustment.
This image was captured on 18 Nov 2016. RUT is still grinding up and it is now trading at 10 years high. I will have to roll up the first fly if it trades near the breakeven line again.

22 Nov 2016 – Day 21 – Adjustment #4

  1. After adding the third Fly, RUT continues its upward move and cross the expiry breakeven line again yesterday and looks like will be trading near 1330.
  2. I have already opened 3 Flies up till yesterday. In order to keep the trade small and still trap the Fly within the breakeven line with another adjustment, I had to roll up the current lowest Fly (1190/1240/1290) even if it means I have to book a loss in this case. Therefore I closed the 1190/1240/1290 Fly yesterday. Up till this point, I have rolled up the lowest Fly twice (1090/1140/1190, once on 10 Nov 2016 & another one yesterday 1190/1240/1290).
  3. Then I opened a third Fly (1280/1330/1380) to keep it within the breakeven line and increase the Theta. It also increases the negative delta, but since RUT move upward showing sign of exhaustion and is now trading at 10 years high, it has a higher possibility of a pullback soon. This is also the reason why I did not open the IWM hedge at this point in time (although I should be doing so from the first adjustment itself to neutralise the delta and also lower the loss when I have to roll up the Flies). *Before this I mistakenly opened a Fly with wrong strikes (1280/1330/1360) and closed it with a small loss immediately after I realised it.
  4. As of today, my P/L Open is close to -$1250, which includes all the loss from the adjustments made. This is way too much from what it supposed to be.
Looks like this trade will only show positive P/L within last 10 days from expiry. This trade is tougher than what I thought when I opened it.

25 Nov 2016 – Day 24 – Adjustment #5

  1. It was Thanksgiving holiday yesterday. I was glad to have a breather as I have been watching this trade everyday very closely since the election day, although RUT is again trading at the breakeven point even after Adjustment #4.
  2. Today market only trading until 1300 EST and there will be the weekend. I want to increase the Theta before the weekend. So I made my fifth adjustment and opened another Fly 1290/1360/1400.
  3. This latest Fly is a broken wing butterfly to the upside, therefore helped decreased the negative delta significantly from -20 to -4. I also closed the current lowest Fly 1220/1270/1320. which helps decreased the delta too. This overall adjustment increased the Theta to 71, which is good over the weekend to cushion the drawdown.


6 Dec 2016 – Day 35 – Adjustment #6 & #7

  1. This trade is finally at it’s final 2 weeks before expires on 16 Dec. RUT was still trading near 1340 since the last adjustment. The Theta had worked for this trade and reduced my loss significantly.
  2. However, since next week is the expiry week and also FOMC meeting to decide on interest rate on 14 Dec 2016, I decided to reduce my exposure and close the lowest (1250/1300/1350) and highest Fly (1290/1360/1400).
  3. This adjustment keep the middle strike of the last FLY at the centre to let the Theta does its work. If it continues to trade near the middle until next week, I will close the whole trade with some profit before FOMC meeting.
  4. Not too long after the adjustment, RUT continues its upward move again and I had to make Adjustment #7 and add another bullish FLY (1300/1350/1370) to counter the move. Chose this broken wing FLY because it is cheaper. In fact I got a 7cents credit for buying this FLY.
Did adjustment #6 at around 10:30am US time.
Risk graph after Adjustment #7. Captured on 7 December 2016 10am US time.

7 Dec 2016 – Day 36 – Exit

  1. RUT broke the 10-year high today and closed at 1364. It looks set to move towards the 1400 mark and might not be able to close in the profitable zone by 13 Dec 2016 (before the FOMC rate announcement on 14 Dec 2016).
  2. I decided to close the last 2 Flies as I am running out of time. I left the IWM Long Calls to collect whatever possible profit that it can generate to offset the loss from the Flies, and will close it latest on 13 Dec 2016.