Wow, the last week was a real blast in Europe! The Greek story transforms into a never ending fairy tale. The marktes are doing fine with that and so am I. Still, a 10 % rise in a week in a broad market index like the EuroStoxx 50 is an extra ordinary event.
For the short option strategy we usually want flat markets with little movement. Actually, we do have everything but flat markets. Volatility was huge and just dropped last week by almost 40 % from mid 30 points to 18 points. So how did the butterfly strategy do?
Below, I am giving a current status from the portfolio including all past trades that have been made. The overall total is currently 168 EUR. Sure, that is not the greatest result to get, but at least it is not a loss!
Still, there are 2 more months to go. The profit range is currently between 3,275 and 3,850 points. If the ESTX50 stays in that range we will be all fine.
As you can see, we are holding two straddles at 3,350 points and 3,550 points at the moment. At 3,750 points I have opened the short put position first to reduce the risk of further rising prices. Ideally, I also want to sell the short call option to complete the straddle, but I don't feel comfortable with the premiums right now. I would rather like to see markets moving up to 3,750 points, so that I can sell the call.
I don't think that we will go much higher than that anyway. The area above 3,800 marks the last high from this year and I don't think we will go above without further down drops.
Anyway, the butterfly strategy is a market neutral strategy, so I do not really need to care about where we are going.
The next steps to take are:
Selling the 3,750 call on rising markets between 3,720 and 3,750 points.
Wait and see on stagnating markets.