After the initial exit 13 days before expiration, the paper portfolio had an upper break-even point of 1470 and delta of -24, when SPX was at 1450. On Saturday Jan 5, SPX had risen 16 points to 1466. The P&L chart indicated either adjustment or closure actions had to be taken with about 11 days to expiration.
To continue my adjustment strategy tests, I placed a couple of butterfly adjustment trades which got filled the next Monday morning. The balanced butterfly, which was not expensive in my opinion, extended the upper BE by 5 or 6 points, reduced delta by 3 points. I thought the rising market was close to a retracement since it was in overbought condition. The new P&L chart is shown below.
trade log by trading dates here. But I let the remaining positions to the expiration date and then closed out all positions with a major loss.
- Adjustment strategy: I have identified one improper adjustment strategy of butterfly in a prior post.
- Exit time: It's best to exit before 10 days to expiration when there is a chance (regardless of profits).
- Handling trading error: If trading errors like improper adjustments are identified for current month, the expected return of the month should be reduced. This means the portfolio should be closed sooner than usual. I'll creat a rule to handle trading errors in my system.