Performance Report Week 2015/26

Last Monday I have opened the first straddle for September 2015. At that day the EuroStoxx 50 Index was 3,550 points. During the week there were many concerns about the Greek debt crisis. Politicians from Germany, France and many other countries are still negotiating about the repayments. Greek default is still possible but nobody seems to know anything.

That is the reason why the European stock market is still in high volatility and the price swings are heavy up and down. After closing on 3,450 last friday the ESTX50 opened more than 100 points higher on monday. That was the time I sold the first butterfly. During the last 5 days the market ranges between 3,580 and 3,650 points and strong movements of more than 2 % in a day.

ESTX50 closing on Friday was at 3,621 points. VSTOXX closed at 26,7 points.

The option positions do trade with a book value of 3,109 EUR now, which is 152 EUR up. But still, even if the book value is higher now, that only effects the outcome if I was forced to close the position right now and buy back the options.

For now there is nothing to do. Next week will be crucial. If the ESTX50 will close above 3,650 points in a day I will sell the next put option with the strike 3,750 points.

Sell to open Butterfly on EuroStoxx 50 for September 2015

Yesterday, I have opened a butterfly for September 2015 expiration. The strike price for the straddle is 3,550 points. The insurance is a one month out long put for July on 3,100. The premium earned is 2,957 Euro after commissions. The break even points are 3,845 and 3,254 points.

Reason for the trade was the strong opening gap of more than 1,500 points after friday closing price of 3,450. The result is a huge volatility of 28 points in VSTOXX. I expect the EuroStoxx 50 to calm down after a few day leaving me with a high premium and buffer.

Adjustments have to be made if the index rises above 3,750 points. Then a new straddle on that level for September will be sold.

The reason I don't buy a long call on the upper level is the strategy to extend the trading range with new straddles. The long put will always be bought for one month expiration. The only goal is to insure huge market drops that could wipe out the portfolio. If the index will decline slowly, the range will be adjusted with new straddles at 3,350 points.

Welcome to Butterfly Millionaire

Butterfly Millionaire is a blog about investing. Specifically I wanna share my learning and experience on how to earn money on the stock market.

The reason why I want to do that is, I want to create a stream of mostly passive income that will found my family's life. Most of the background is presented at the "Start Here" Page. There I explained my experience and my background.

Currently I am working in a fulltime job in the corporate finance world in Germany in a small company. I like what I do but I do not feel confident to stay an employee for the rest of my life.

As my wife is from the Philippines we are both working hard to create a lifestyle that offers us the freedom of choice where and when we want to live or to work.

In the next weeks I will describe the main sources of income that can be used to earn money from the stock market. Additionally, I will describe my strategy how I am planning to generate a regular income stream just using dividend payments and option premium.

My starting capital is only 10.000 Euro, so there is a long road to go to. A basic income for a small family will be at least 2.000 Euro in a month. Based on current projections on earning 2 pct. a month on the capital invested, we will need at least 100.000 Euro.

Currently we do both work hard to buy ourselves the time we want. Both of us know colleagues that have kids at home, but the job does not offer enough flexibility to see to them growing up. We don't want that!

My wife will probably stop working in year or two. So in that time we will need enough income to cover her income and still have spare money to invest.

It's going to be a long journey...