Weekly Iron Butterfly Backtest (Part 9)

In this blog series, I’m backtesting the weekly option trade described here.

Week 8′s trade begins like this:

The market rallied to the first adjustment point on the next day:

The rally continued into Monday when the second adjustment point was hit.  Not only did I roll up the short calls 10 points, I also rolled the short and long put up 25 and 30 points, respectively.  This adjustment, shown in pink, preserved profit potential for the trade as well as managing downside margin:

When the market pulled back on the next trading day, max loss was hit:

P/L on Day 1 ranged from -$285 to +$24.

P/L on Day 2 ranged from -$519 to -$345 on an adjusted margin requirement of $5,136.

P/L on Day 5 (nothing happened over the weekend) ranged from -$606 to -$537 on an adjusted margin requirement of $5,433.

Trade was closed on Day 6 for a loss of $738, which is 13.6%.

This backtested trade has now won and lost four times each.

Weekly Iron Butterfly Backtest (Part 8)

In this blog series, I’m backtesting the weekly option trade described here.

Week 7’s trade begins like this:

The trade closed just before the market sold off markedly:

P/L on Day 1 ranged from -$399 to -$114.

P/L on Day 2 ranged from -$75 to +$318.

Trade closed on Day 5 (nothing happened over the weekend) for a profit of $444, which is 10.1% on $4,419 initial margin.

In backtesting, this trade has now won four times in seven weeks.

Weekly Iron Butterfly Backtest (Part 7)

In this blog series, I’m backtesting the weekly option trade described here.

At inception on Week #6, the trade looked like this:

The P/L ranged from -$144 to -$837 on this day.

On Day #2, max loss was hit:

The market only had to rally 14 points to force a 26% loss on the initial margin of $4,311.

In the first six weeks of this backtest, we have seen three wins and three losses.  That only tells half the story, however.  The average win has been $515 versus an average loss of $1,032.  That, my friends, is a recipe for disaster!

Time will tell whether these early tendencies persist.