Weekly Iron Butterfly Backtest (Part 17)

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

For Week 16, OptionVue did not have weekly data for the Thursday before expiration week.  I therefore started this trade on Friday:

The market rallied into Monday to force an adjustment:

Of all the rotten luck–this was the top!  By the next day, the market had fallen 10 points back to its starting point.  I adjusted back to the original trade:

Unfortunately, the market continued to fall.  At Wednesday’s open, the trade looked like this:

This does not look bad.  Look at the wand (turquoise vertical line) sitting far below the current price (black dot).  That is how far the market fell just a short time later putting this trade at max loss:

P/L on Day 1 ranged from -$114 to -$366 on $4,854 margin.

P/L on Day 4 (nothing happened over the weekend) ranged from -$498 to -$765 on an adjusted margin requirement of $6,831.

P/L on Day 5 ranged from -$303 to -$777.

After opening Day 6 down only $180, this trade was closed for a loss of $1,101, which was -16.1% on max margin.

This is the classic case of being whipsawed.  Had I never made the upside adjustment and then the second adjustment to undo the first, this trade would have hit its profit target on Day 5:

If only trading were that simple?

This trade has now lost seven out of 16 times.