Practice Trades BWB+Cal 1.1

Practice Trades BWB+Cal correspond to the following general guidelines:

• With 14 DTE, buy first above-the-money 40/60 BWB.
• Use 10-point strikes only and TF $21/contract.
• If underlying exceeds upper strike then buy calendar above the money.
• If underlying exceeds upside calendar strike then [close downside Cal if needed and] buy Cal above the money.
• If T+x lines underwater, then calendarize upper leg of BWB to raise (else close).
• If underlying falls below 25-yard line of BWB then [close upside Cal if necessary and] buy Cal below the money.
• If underlying falls below downside calendar strike then roll calendar below the money.
• If T+x lines underwater, then calendarize lower leg of BWB to raise (else close).
• PT 5%
• Monitor position once daily and adjust as needed.

The wings may be adjusted to 30/40, 50/60, 40/50, etc. in order to limit initial NPD, which should ideally be slightly negative. The short strike may also be split although this may make execution more complex.

This trade begins 3/18/21 (14 DTE) down $840 (max DD). MR is $7,015 (five contracts), PT is $7,015 * 0.05 = $351.
At trade inception, TD = 36, IV 17.1, NPD = -1.78, and NPV = -122.

First adjustment occurs very next trading day with max margin increasing to $11,285.

Second adjustment occurs on 3/26/21 (8 DIT) by rolling up calendar and calendarizing two of the five upside wing contracts. This increases margin to $14,238.

On 3/30/21 (2 DIT), exit trade for 7.2% on max margin with market up 0.32 SD in 12 days. IV decreased 18%.

I have two general comments.

First, I suspect $21/contract TF is much more than I should normally see in live trading (this amounts to ~12% initial margin with a PT of 5%, which seems preposterous). If this works out okay in backtesting or on paper, then it should work out well. As I do some of these live, I should get a good feel for what number to expect.

Finally, I’m a bit unclear as to whether I should use PT as a percentage of initial margin, current margin, or max margin. Until I see reason to change, I will use the latter. This does mean, however, that the trade should always be done with a limited portion to account for margin more than doubling upon adjustment.