Credit Spread » Butterfly Option

20 Minute Credit Spread Profit

Credit Spread — Sat, 08 May 2010 16:31:36 +0000

When the market tanked on Thurs – May 6, 2010 – the VIX spiked over 40 and the vols soared. Then the market bounced back up pretty quickly, and around 20 minutes before the close, talk started coming out on the networks that the huge drop was due to some ‘fat finger’ error by some overweight guy at some trading firm. As soon as this rumor started circulating on the networks it felt like immediately the volatility levels began shrinking back down – giving us the opportunity to quickly throw on a split strike iron butterfly trade to see if we could take advantage of those sinking vols. This was with about 20 minutes left before the market close. (The split strike iron butterfly could also be considered an iron condor – or two separate credit spread)

Within about 15 minutes of putting this trade on – this trade had a profit of 2.5%. We closed it at this point – with 5 minutes left before market closing. Even though we closed it – we continued to monitor it as if we had left it on – and as the bell rang to close the market the trade was up another 2.5% for a total possible profit (had we held on until market close) of about 5% gain in around 20 minutes.

The screen shot above was taken as market closed on Thurs. This iron butterfly was placed at even money about 20 minutes earlier. Due to the vols falling back down after the huge drop, this trade shows a 5% profit made in about 20 minutes.

This post is from: Credit Spread

20 Million Dollar Day (according to TOS anyway)

Credit Spread — Fri, 07 May 2010 05:59:55 +0000

Today when the market went nuts (dow dropping 1000 points) our TOS platform started acting haywire. Risk graphs were creating crazy formations for awhile there, then our net liquidating value suddenly said we had over 20 million dollars available.

Tried as I might, I was never able to liquidate any of that before it corrected itself and went back to showing the actual correct sum. Unfortunate really…

However, through out that huge drop, our Iron Butterfly trade did amazingly well.

About 2 hours prior to the craziness starting our position was down around $100.00.

With the market moving down we added a bear side adjustment. Then when everything hit the fan, even though we were well outside our profit tent area, the vols took this trade from what started as a $100.00 loss to over $1000.00 profit. See risk graph below…

Hedged Iron Butterfly During Dows 1000 Point Drop – May 6, 2010

This post is from: Credit Spread

Option Spread Strategies

Credit Spread — Wed, 24 Mar 2010 19:25:20 +0000

There are numerous option spread strategies non directional option traders can use to profit from the market without having to ‘know’ or be necessarily ‘correct’ about market and/or stock direction.

These include the iron condor, the butterfly spread, the diagonal and the double diagonal, the calendar spread – the double calendar spread – and, the credit spread (also know as a vertical spread).

The credit spread can actually be found hidden within many of the above mentioned option spread strategies. For example, the iron condor is created from two individual and separate credit spreads – a put credit spread positioned down under where the stock being used is trading at – and a call credit spread put on up above where the underlying is ticking at.

The credit spread can also be found in the butterfly spread. It is the upper half of the ‘regular call’ or ‘traditional’ call butterfly – is the lower half of the put butterfly – and the iron butterfly is comprised from 2 credit spreads – both a put spread and a call spread.

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photo credit: hiwarz

This post is from: Credit Spread