Update: October 2nd, 2019
Adding to the trade.
Update: October 3rd, 2019
Some clients are having trouble adjusting the trade because the position flips from net long to net short on the 260 puts and the brokerage is throwing an error.
You can fix this by breaking apart the butterfly and creating a rolling order to shift the 260 put up to the 270, then selling the 260 put.
Here’s a visualization of the contracts that are currently open:
So the “Final” column is the shape that it needs to be in, but putting that order out on its own can throw exceptions due to the 260 strike. This is why I like to have these butterflies on completely different strikes, but the structure of the trade dictates this is what we need.
Here’s the way to “leg in” to the trade.
Instead of putting on the butterfly straight on, you split it apart and “leg in”
Adjustment #1 is the 260/270 put vertical buy. This will close out the 260 call and open up the 270 call.
Adjustment #2 is the 260/245 put vertical sale. This will get you into the right “shape” of the trade.
Note, that you can do the adjustments in either order that you want… if you start with adjustment #1, you’ll be more net-short to start. If you start with adjustment #2, you’ll be more net-long.
Do NOT try to get cute and have a lot more directional exposure overnight. That’s not the purpose here. You want to leg in to both sides as quickly as possible.
Update: October 14th, 2019
Closing out the trade for nice profits.
