Best Trade to Learn From: Exceeded Max Loss - Mar 22 2013

Account: Mar 22 2013 Backtesting

This is the third time I'm trading this position because of the terrible performance of my prior adjustments on this trade I was left with a -$5000 PnL.

Trade entry: Mar 22, 2013

Adjustments:

• Managing the t+0 line 20 to 25 pts on both sides
• Apr 3 - Sold 10 x 920 to reduce DELTA inside tent
• Apr 5 - Sold 4 x 910 to protect t+0 downside risk
• Apr 9 - Sold 3 x 930, 1 x 920 to reduce DELTA inside tent
• Didn't worry about protecting t+0 upside as much. I'm more protective to the downside
• Apr 10 - Sold 5 x 930, 2 x 940 to reduce DELTA inside tent
• Apr 15 - Large move -35 pts as a result my BF's are not being priced well
• Sold 6 x 900, 4 x 910 to reduce DELTA inside tent
• Apr 16 - Sold 2 x 910, 4 x 920 to reduce DELTA inside tent
• Apr 17 - Sold 2 x 910, 2 x 900 to reduce DELTA inside tent
• Apr 18 - Sold 4 x 900 to reduce DELTA inside tent
• Apr 19 - Sold 3 x 920 to protect t+0 upside risk
• Apr 22 - Exited the trade 25 DTE at max loss -$2380

Summary:

This was a difficult trade b/c a few days into the trade I had a PnL of -$3500 i.e. greater than my max loss number of -$2500. I've been told that in situations when price of the RUT drops significantly the market makers (mm's) don't know how to effectively price the butterflies (bf) and therefore the value of the bf's gets yanked until the market stabilizes.

In this situation I increase my absolute loss to $4000 and try to either get to a positive PnL or back to within my max loss threshold of -$2500. The other times I've traded this date I've always exceeded absolute max loss and hit -$5000, which is not cool.

Live to trade another day.