A mostly bullish week triggered a signal to unwind our downside October butterfly hedge Friday in the final 45 minutes of trading, only to reverse that signal within the subsequent half-hour. With SPY now back well over $117 in pre-market trading this morning, it looks like we’ll be going through with that adjustment today. Note that we’re planning to roll the butterfly into an iron condor, which will require approximately $500 in additional margin per contract.
As of Friday’s close, this was the status of our October portfolio: The unrealized gain on total capital at risk was about 4.2%, with delta and vega still fairly close to neutral (at about –0.5% and 1.1% of capital at risk, respectively). With the passage of time, our probability of being profitable at expiration had increased to about 80%. Adjusting the butterfly hedge will lower that probability, but increase our potential profit…and we still have capital available for additional adjustments, if needed.
Our Model Portfolio P/L graph at Friday’s close is shown below: