My Bread and Butter Trade

[ernsttanaka]

We are all waiting for the bounce, which seems not to happen right now and here. The vix spiked (a bit) in the last half hour. In the afternoon the RUT broke out of the day-trade-range. Both not really positive signals.

I was sitting on a small profit. With the jobless number coming out and the position so close to a first adjustment. I decided to pull take the (small) profit and run. $375 with approx $8000 in risk makes 4% in 7 day; not bad for a trade that got quickly into problems.

The decision came in two steps;
On the first graph you see the untouched position (simulated)
On the 2nd graph you see the position with a time-spread 790 Jul/Aug which I added around 1pm.

The time spread was a vega hedge cutting the vega in half. If the bounce had materialized during the afternoon hours, the calendar would not lean (too) negative on the fly. All in all a position which I was willing to hold overnight, till the break in the trading range happened.

Then I decided to pull the (iron) butterfly. It is still 37 days till expiry, so I have at least another week to see how the market develops and to re-enter on a hopefully better stop. So for the time being I am left with a time-spread which you can see on the third graph.

I have to admit that not all the decision making is mathematical. I got my biggest draw last year when QE1 ended I haven't forgotten that experience and I play the end of QE2 extra careful.