Butterflys and Condors

PORTFOLIO GREEKS (SPX beta-weighted)
Delta: 2.0
Gamma: -2.1
Theta: 108.1
Vega: 203.11
Buying power: $111,664

Analysis of Yesterday's Trades
Today was a great lesson as to why it is very beneficial to use Vega as a great hedge against your deltas. I was long 10 SPX deltas going into today. The SPX was down -9.23 points today. Being long deltas on a down -9 day should have results in me losing money (around 100 bucks if P/L was purely contingent on one's deltas). however, since I had a significant amount of positive vega in relation to my long deltas, I ended up losing no money (the paper-folio actually made +$50 today--not alot, but not bad considering I've only put about $10,000 to work so far). That is because on this down -9 day the VIX popped +1.10 points (see chart above), up to 14.15, just as I was expecting based on the rationale I laid out in yesterday's post, and is why I bought volatility (through calendars/diagonals) yesterday, and said that I would wait for a pop up in vol before I sell vol via outright verticals (ie: iron condors). Obviously, I not going to time it this perfectly (high vol can lead to higher vol, as well as low vol staying low vol), but if I at least make an intelligent effort and have a method of putting on trades at more opportunistic times, hitting these little singles add up to a lot of extra $$$ that add up to homeruns over longer time-frames---and its much better to have a plan based on statistical probability than a plan purely based on luck....

Now onto today's paper-folio trades (priced at today's close)...

I'm going to put on a few butterflys here--one above the market and one below the market. In fact, I'm going to spend 1% of my portfolio on these trades. Generally speaking a butterfly spread has the greatest ability to widen during these last 10-15 days before expiration, so spending 0.40 on a 2 point wide butterfly is a good risk/reward (0.40 was the average between what I spent on both butterflys). I'm opening butterflys both above and below with the intention of 1 side immediately doubling (to around .70-.95)--then I'll take half off and let the rest ride. I really hope that with the volatility we are experiencing that I can actually make some money on both butterflys. I don't mind risking a whole 1% of my portfolio on these as they are great risk/reward trades into expiration (40 cents risk, with potential 1.60 reward), and they also act as a bit of insurance as they help manage the negative gamma exposure in my short options in my front month (July).

I'm also going to put on a couple Iron Condors in both the SPY and IWM. I aimed to sell options with deltas less than 25 for my July's and deltas less than 20 for my Aug's. Still have a lot of buying power left...

One more thing...notice how wide apart the Bollinger Bands are. This is expected since the VIX spiked last week, then quickly reversed path after the panic was out of the air. Typically periods of high volatility are following by periods of low volatility and vice versa. This would lead me to believe that a period of lower volatility could be upon us, which would actually be about par for the course since it is summer, and the market usually sits in the summer doldrums between July-August trading somewhat rangebound--something I'll be keeping in mind as I start putting more of the portfolio $$$ to work over the next week.