Dan Harvey and Tom Nunamaker - Road Trip trade

Ron Bertino

Administrator
Staff member
Recording:

Slides

Trade setup:
  • underlying: SPX
  • enter at 65 to 75 DTE
    • enter on a flat to down day
    • enter a new trade every two weeks
  • put broken wing butterfly (BWB)
    • upper long is within 5 points of the current SPX price
    • short strike is 40 points below the upper long put
      • likes to have the delta between 29 and 32 for this strike
    • lower long put is 50 points below the short strike
    • one tranche = 6 BWBs
  • ideal entry price for the BWB is a max of $1.25
    • you will typically enter between $1 and $1.25
  • planned capital is $8500 per 6 BWBs
    • approximately $6500 initially plus a $2000 reserve for put debit spread adjustments (if needed)
  • profit target: 10% to 20% return on max margin ($1200 per six lot)
  • note that the position deltas will start off slightly positive (at 3 or 4 delta)
    • you could optionally flatten deltas to zero, but Dan does not do this
      • ways of flattening out:
        • roll back 2 of the shorts by 10 points
        • roll up 2 of the upper longs by 10 points
        • sell a single 15 point wide call credit spread which is 20 points OTM

Adjustments:
  • during the first 30 days, try to leave the position alone unless the SPX has a large move down
  • downside adjustments:
    • downside adjustment point:
      • if price gets to the lower expiration break-even, or if the position delta is greater than +15 to +20
    • adjustment:
      • add put debit spreads to lift the down side
        • remove these put debit spreads if price then reverts and hits the (center) short put strike of the BWB
      • you could also just exit the trade for a small gain or loss
  • upside adjustments:
    • upside adjustment point:
      • if the trade is more than 30 days old, and the market is more than 30 points above the upper long put:
        • roll down the upper long put (reverse Harvey), one at a time, such that you lift the upper expiration line to slightly above zero
        • then just let the trade breathe, since you will frequently get a pullback at a later time and be able to get a decent profit
          • if the pullback never comes, then at this point you have a riskless trade to the upside anyway
      • Tom Nunamaker tip: in order to determine when to raise the upside expiration, look to a projection of where the 1 SD move will be at 14 DTE (target exit date); if the 1 SD move to the downside is in the middle of the BWB, then raise your upside expiration line
  • taking profits
    • once the trade reaches 10% return on max margin:
      • use the Reverse Harvey process (roll in the outer long puts) in order to lock in profits and reduce delta and gamma risk
        • if SPX is well above the tent, then Reverse Harvey the upper long put
        • if SPX is inside the tent, then Reverse Harvey both long puts
          • normally Reverse Harvey both puts by the same amount
          • can optionally create a symmetric butterfly (Reverse Harvey the lower put by 10 points such that both the lower and upper wings are now 40 points wide)
Exit:
  • normal exit is at 10 to 14 DTE, if SPX is near the tent
  • if SPX is > 30 points above the upper long put, you can let the position expire



Standard starting position:
RT-01.png

Adding a teenie:
RT-02.png

Rolling back a single short put by 20 points:
RT-03.png

Adding an OTM call credit spread:
RT-04.png

Rolling up two upper long puts by 10 points:
RT-05.png



If you'd like to follow along with a paid trade advisory service for the Road Trip trade, you can find it here.
 
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