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10.1 SPX Trading Guide 1 - (CourseWikia - Com)

This document provides guidance on trading put broken wing butterflies on the SPX index. It recommends entering the trade when the SPX is below technical support levels and not overextended above the 50 SMA. It describes the strike selection process, including selling 2 puts at the short strike and buying puts 50 points lower and 35-45 points higher. The goal is to collect a credit with a neutral position delta between -0.5 and 0.5. It also provides guidelines for taking profits, risk management, and worst case scenarios.

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PIYUSH PANDEY
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
311 views

10.1 SPX Trading Guide 1 - (CourseWikia - Com)

This document provides guidance on trading put broken wing butterflies on the SPX index. It recommends entering the trade when the SPX is below technical support levels and not overextended above the 50 SMA. It describes the strike selection process, including selling 2 puts at the short strike and buying puts 50 points lower and 35-45 points higher. The goal is to collect a credit with a neutral position delta between -0.5 and 0.5. It also provides guidelines for taking profits, risk management, and worst case scenarios.

Uploaded by

PIYUSH PANDEY
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 8

Part 1- Trading the SPX

In part 1 of this course you will learn how to trade the SPX index

The trade structure demonstrated is a put broken wing butterfly

This is essentially a put credit spread with an additional long put above
the short strike to offset losses

This type of trade is better because it is more delta neutral compared to


a put credit spread

It also carries much less gamma risk meaning during periods when the
VIX shoots higher it will not be affected nearly as much as a put credit
spread would
1
Entry Guidelines (SPX)
● Technical analysis for a trade like this is not 100% required but it is
recommended to filter out bad trades
● Find technical support levels for SPX using the Daily chart
● Use the 50 and 200 SMA lines on the daily chart for support and
resistance
● If the SPX is below the 200 SMA do not enter the trade
● If the SPX is overextended above the 50 SMA do not enter the trade
○ Wait for SPX to pullback to 50 SMA before entering

2
Trade Size (SPX)
● Allocate no more than 30% of total account value
● Each butterfly uses roughly $1000-$1500 in buying power
● At least $5000 recommended account balance per butterfly

3
Strike Selection (SPX)
Expiration: Closest to 45 DTE
All Contracts are PUTS
● Short Strike (-2 Contracts) 1. Sell 2 of the short strike puts
○ Must be from -.20 to -.30 delta 2. Go 50 points lower than the short strike and
○ Pick the put with the most open buy this strike
interest 3. Go 35-45 points above the short strike and
● Lower Long Strike (+1 Contract) buy this strike (varies depending on credit
○ 50 points below short strike received and position delta)
● Higher Long Strike (+1 Contract) ○ ALWAYS use 40 points above short
○ 35-45 points above short strike strike for this variable put UNLESS
○ 40 points above is ideal you must pay a debit to open
○ Use 35 or 45 points above if you don’t 4. Goal is to collect a credit and have a neutral
receive a credit, or the position delta is position delta (inbetween .5 and -.5)
not neutral (delta should be in 5. If you are unable to collect a credit, you can
between -0.5 and +0.5) pay at MOST a .25 debit to open (.26 or
● Buy $1 SPX Put as Hedge (Optional) higher you should wait for another day to 4
open the trade)
When to Take Profit (SPX)
● After entry, set a GTC order to take profit at $60 per butterfly
● Once profit is taken, open another trade
● If $60 profit isn’t taken by 21 DTE, consider closing for at least breakeven
or a small profit
● Feel free to let it expire worthless to reduce commission costs if you are
unable to get $60 profit
● Note: Don’t let it expire if you paid a debit to open
● Holding until expiration can be detrimental if the market crashes and
falls lower than your short strike

5
Risk Management (SPX)
● If SPX falls below the furthest OTM put, exit and take loss if necessary
● If position delta goes higher than +3 or lower than -3 per butterfly, you can adjust
by rolling the variable put up or down (goal of this is to bring delta back to
neutral)
○ Try to avoid doing this as it can rack up unnecessary fees and commissions
○ I am not a fan of adjusting my trades, depending on the market scenario I would generally just
close out of a trade if I do not believe it will be a winning trade

6
SPX Worst Case Scenario (SPX)
● The worst thing that can happen for this trade is a huge gap up in the VIX and a
flash crash for the S&P 500
● Remember to keep in mind that you will win most of your trades but you WILL
lose a small percentage of them
● With this broken wing butterfly structure the higher long put will help to negate
losses in addition to the lower long put
○ This is why I prefer the broken wing butterfly structure over a put credit spread
● According to previous backtests the most your account should draw down during
a flash crash is up to 10% given you have only allocated 30% or less to the SPX

7
Additional Resources
I currently work as the quantitative options analyst for Haikhuu Trading which is the
#4 stock trading community online. The Haikhuu team and I would love to have you
in our amazing community.

Contact email:

[email protected]

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