Tuesday, December 4, 2012

Another adjustment with butterfly to pump up profit curve

As market turned up at the intermediate term, my option premium selling portfolio for December has been dealing with rising delta. Yesterday as time was gradually get closer to expiration, I found it's helpful to create a regular butterfly spread which increased theta and reduced delta for the smooth portfolio. The main effect appeared to be pumping up the right slope of the P&L chart from 1430 to 1440 area as shown in the image below. When the 2 to 3 day pullback is done, I might have to purchase 100 or 200 SPY to neutralize portfolio delta by 10 to 20 points, weighted on the SPX index. It should keep my theta around 100 for a few more days so that I can close the December portfolio about 2 weeks before expiration.

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