Day 2 Account Value: $2497.5 (-$2.50/-0.08%)

It’s now been a couple days since I put the first two trades on, both of which are marked about the same as where they were placed. Taking a look at our Top 10 this morning, I wasn’t seeing anything interesting until I took a closer look at vol in PG. Realized vol is sitting in the 79th percentile and dropping, while implied vol is in its 68th percentile. More importantly I think is that IV just poked back above HV. With implied now overstating realized vol and thinking that realized vol may begin to trend back towards its long-run average, this looks like a good place for a straight vol selling play. Since ATM options carry the highest vega, I decided to put on an iron fly (capped straddle).

Since an iron fly is by definition selling a straddle and purchasing OTM legs to define risk, that only left the decision of how far OTM to go. Since the Jan’17 strikes are $2.50 wide and I want to keep our maximum risk per trade <10% of our account value for now, I could have gone either $2.50 wide (80/82.5/85) or $5 wide (77.5/82.5/87.5). Going only one strike out would have us buying in a lot of the vol we’re trying to sell with the ATM short strikes (reducing our net vega exposure), so I went with the $5 wide fly.

A little while later I sold a 120/123/136/139 Jan’17 iron condor in IWM to get an index play on. On entry those strikes were around 20 delta on the short side and 12 delta on the long side. Not particularly exciting.

Today’s Trades (greeks near open):

1. STO 1 Jan17 PG 77.5/82.5/87.5 iron butterfly @ $3.00
   • Delta: -4.2
   • Gamma: -6.96
   • Vega: -9.45
   • Theta: 1.36
2. STO 1 Jan17 IWM 120/123/136/139 IC @ $1.02
   • Delta: -6.02
   • Gamma: -2.23
   • Vega: -8.52
   • Theta: 1.33

Overall, the portfolio is net short delta/gamma/vega and long theta.