To celebrate this new forum I will post for a month my main bread and butter option trade. For several years I have been trading ATM Butterflies on the Russell 2000. A butterfly is a typical non-directional trade, which allows a trader to accept market risk without expressing a strong bias for a direction. The reward for this trade comes out the decay of the short options.
For July I opened my trade today, by selling a ATM (Iron) Butterfly (770/820/870) for 34.65.
I will publish my trade in a 5 lot - this is a good size to communicate all the aspects of this trade - for reason of privacy I will not disclose the size in which I trade in real life.
The July trade has a risk of 5*100*50 = $25000 minus the premium received $17325, so my total risk is $7675. This the beauty of the trade my risk is defined - an overnight gap and the RUT open on 0 or on 2000. My risk is defined. I will try to work this trade till I earned approx 20% of my risk.
In normal months I might have to adjust this trade a couple of times. Sometimes it is set and forget and at times I will have to bail take my loss and wait for the next month to start again. For me it is essential not lose more than MAX!!! twice what I make in a normal month. But a loss of twice a normal month should be a very exception hit - IMO a combination of personal errors and a though market can only lead to that kind of loss.
So we got the entry, we talked about Risk, we talked about a goal for reward. I will update daily and walk you through the other aspects of this trade.
I know we have some very knowledgeable options traders on this board; Harold, Thannis, Michael. Feel free to chime in as we move along. I am very interested to learn from you insights.
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