20 Minute Credit Spread Profit
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<< 20 Million Dollar Day (according to TOS anyway) Credit Spread >>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.
