An interesting strategy on SPY.

I have posted a strategy on India's Bank Nifty by using short iron butter flies on weekly contracts some time back. I am sure no one has tried them. The main reason traders avoids the strategy is the complex nature of iron butterfly. Another reason is the low level of profits. They forget low level of losses. Bank Nifty has been removed from weekly trades by SEBI. Huge margins dissuade execution of iron butterfly in India.

Iron butterflies require the trader to sit idle till he gets his required profit.

Short iron butterflies on SPY provides an easy way to make small profits in the US markets also.US Brokers provide execution of iron butterfly as a single unit for a net receipt. There is no need to make 4 trades. Similarly closing of iron butterflies can be executed for a net payment.

Monthly contracts on SPY is most suitable for the trade.

Today is 24th February. Contracts on SPY expiring on 21 March are available.

SPY is trading at $600 now.

Buy one contract of calls at 610 strike. Also buy another contract of puts at 590.

A trader needs to pay $10 for both together.

After that sell one contract of 600 strike calls and puts.

A trader will receive $18.5.

Thus his net receipt will be $8.5.

This is a short iron butterfly with a wing span of 10 dollars.

As the trader has $8.5 receipts his maximum loss will be $1.5.

Therefore a trader needs a margin of $150 to execute this contract.

Suppose a trader has a total margin of $2000.

He must use only less than half for one month.

Therefore he can execute 5 contracts using $750.

His profit target must be less than $75 from one contract.

After executing these contracts he should place orders to close contract at $7.75.

If the trade gets executed he gets a profit of $75 from a contract of size 100.

Altogether he gets 75*5= $375 from his 5 contracts.

In the first 10 trading days, the closing trade may not be executed.

SPY may move up or down during these 10 days.

Not much notional loss will be present.

Gradually, profits start coming up.

If SPY moves between 590-610 during the period erosion of time value will create a profit of $75 one contract.

If SPY moves above 610 or moves below 590 sit tight. Wait for another 5 -8 days. If SPY does not give you the required profit shift the contracts up ward or downward.

In one of my previous articles I have described how to shift upwards or down wards with out any loss or a loss of few dollars.

This strategy never fails.

More over, the maximum loss is only $150 per contract if one kept the trade till the expiry..

Once the profit is booked take the next contract.

Every year one can takes at least 16 trades.

If all the trades are in profit, he makes 375*16=$6000. His capital is only $2000.

Even with a few losses, a trader can make at least 100% profit.

Doubting Thomas's should create one contract today and watch the behavior for a month.

His maximum loss will be only $150.

No other trade should be executed during this period.

Most traders can not sleep over the trade for a few days.

They are addicted to day trading. They will take directional trades and lose money.

Only persons who take trading as a business should under take this trade.

Indians are the most suitable people for this trade.

The US markets open at 8PM at Indian time and close at 1AM at Indian time.

A trader in India can execute this strategy and sleep peacefully.

He needs to check the results every morning after a good sleep.

He will never have the itching to trade more.

To open a trading account he needs a social security number.

Ask a friend in the US to open an account in his name and fund the same.

Best of luck.