The EuroStoxx 50 is still moving in a wide trading range. Two weeks ago it closed around 3,600 points. Now, we are still facing 3,638 points. The Volatility Index VSTOXX is still around 18 and almost 50 percent less than the highest markes of 35 points. That is good for earning option premium, but bad for selling new positions.
So what happend in the past 2 weeks? The Butterfly Options Strategy is still working smoothly. I did not have to adjust anything. There are still a straddle (Short put and short call option) at 3,350 points and 3,550 points. Another short put position is open at 3,750 points as upper protection. Current position value is 1,700 EUR.
As the volatility is still low, I chose to close out my August protections. Instead I opend a so-called Bear-Put Spread consisting of 3 long puts and 3 short puts at a lower strike. The advantage is that I can offset some of the long-put expenses by selling puts at lower strike levels and earning option premium. The other side of the coin is, that down-side protection is limited to the strike of the short put strike. In my case, I bought long puts at 3,200 points and sold puts at 3,100 points giving me a maximum income of 1,000 points if the EuroStoxx 50 drops below 3,100 points.
Why did I chose this construction and did not keep with the long puts? The reason is, that we are more close to the upper range than to the down-side. That means, the Index needs to drop from 3,600 to 3,100 or at least 13 percents to release the full power of the bear put spread. A single long put would be on even lower strikes around 3,000 points -- in fact offering me less protections on medium down-moves.
Currently, I have my eyes on the upper side of the range. My area of maximum profit is at 3,550 points strike in September. If the index moves too far from here I will earn less profit until I start losing money above 3,850 points.
At the moment, we are perfectly in the range and everything is fine. The risk is when the markets moves strongly higher. I am only one and a half months out to expiration and premiums are getting notably less. That limits my options to adjust the range properly.
In fact, I don't think that I will hold the positions to the better end. Moreover, I am planning to close the positions before September, so that I can get ready for the next quarter on a blank sheet. The advantage is, that I can take profits and cut the risk that the trade crashes shortly before the expiration turning a fair win in a loss.