MAY ‘09 SPY BUTTERFLY SPREAD - IRON CONDOR CLOSED
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5-14-09
This month we used a strategy called ‘Theta Scalping‘ to adjust our SPY Butterfly Spread trade. This adjustment strategy involves using the underlying STOCK in conjunction with the trade to adjust the position instead of using just the options.
This month, when SPY first shot up, we did our first round of adjustments using only SPY options like we usually do. However after the first round was complete, we then switched and rode out the rest of the trade adjusting with SPY stock.
What’s interesting about adjusting using the stock is that the trades theta DOESN’T decrease like it does when using options to adjust. When using options, the theta of the trade can get cut down causing the trade to make less through time decay. Using the stock to adjust, we were always able to get back towards delta neutral without any real decrease in theta.
This way of adjusting can be used with iron condors and calendar spreads as well.
Below is a screen grab of this trade about a week after it was first initiated and a day or two before SPY shot up causing us to make or first round of adjustments (around 5-1-09)…
5-1-09
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