14 Dec 2016 – Exit & Summary

  1. RUT started to move downwards slowly from 12 Dec 2016. The underlying price movement did not generate profit. However the Theta had helped and by today, Theta and the increasing IV in anticipation of Fed announcement in a few hours time had helped generated enough profit for me to exit the trade.
  2. Bought the BWB at a debit of $1.80, and sold to close for a $3.50 credit.
  3. Nett profit for this trade $158.96 per Fly.
This was captured after I closed the trade for a 3.50 credit. Always follow plan and book your profit, and never chase the maximum profit because you will never know when the trade could turn from a winner to a loser.

8 Dec 2016 – Entry

  1. RUT is trading at its 10 years high.
  2. Fed will be announcing it’s decision on interest rate on 14 Dec 2016 and market is expecting it to raise it’s interest rate from 0.50 to 0.75.
  3. Based on above 2 reasons, I have a bias view of RUT moving lower in the next few days. I decided to open a Broken Wing Butterfly, which will be closed latest on 14 Dec 2016 before the FOMC meeting at 2pm.
    • I got the BWB at $1.80 per Fly. With this my loss is capped at $180 per Fly even if my directional opinion is wrong and it continues to move up and the option expired worthless.
    • If it moves downwards, the increasing IV will increase the option premium and also move into the profit zone, and I will have a chance to close the trade with a nice profit.
  4. Since it will be closed latest by 14 Dec 2016, I have chosen options that will expire on 16 Dec 2016. This will give me the highest Theta possible.
  5. This is almost a “gambling” trade without referring to any technical indicators, therefore it is totally not advisable to do it … LOL.
Risk profile of the BWB during trade entry.