Many have asked if the Rhino butterfly options strategy can be traded on the SPX (the S&P 500 index) instead of the RUT (Russell 2000).
The short answer is yes – provided that make the lower wing 100 points wide and size the upper wing appropriately to have the position start off delta neutral (of just slightly negative).
Here is the long answer.
There are good and valid reasons why some traders prefer the SPX.
It may be that they are more familiar with trading the SPX.
SPX is the most heavily traded index, which makes it have greater liquidity and tighter bid-ask spreads.
It is also larger so that large traders can use fewer contracts to deploy the amount of capital they want to deploy.
And the SPX has more expiration dates to choose from.
The Rhino is a positive theta delta-neutral strategy.
In other words, it is an income-style option trading strategy that profits from the passage of time, with the underlying assets preferably staying within a tight range of movement.
If the underlying moves too much, we perform the various adjustments characteristic of the Rhino trade.
It is believed that the Rhino strategy was the brainchild of Brian Lawson.
The earliest reference to this strategy found on the internet was Brain’s presentation at Capital Discussions, recorded on YouTube in 2015.
Upon review of that presentation, he did have a slide with the bullet point “Trade on RUT or SPX,” and he mentioned that he traded it on both.
However, his examples were all on the RUT. Interestingly, he had written “RUT or SPX” (rather than vice versa), which suggests that he might slightly prefer trading it on the RUT. Not sure why.
Since that presentation in 2015, many other traders have picked up on the concept and tweaked and evolved it to some extent.
Option trader Bruno Voisin had said that the Rhino is an adaptable strategy, and traders can take it and make it their own.
He trades it on SPX and said it is possible to even trade it on large tech stocks.
SMB Capital has its version of the Rhino strategy as a course for students.
The video course overview says that it can be traded on the SPX for diversification.
I’m sure many other traders have made tweaks to the Rhino, and I’m equally sure that some traded it on the SPX and not exclusively on the RUT.
Other traders modified it using baby butterflies as upside hedges rather than calendars. Others have tried scaling in on the downside (which is normally not done in the traditional Rhino).
The sign of a mature trader is to take the core principles of a strategy, adapt it for different underlying assets, and tweak it to match your personal trading style preference.
When I first wrote about the Rhino, it was a RUT example.
However, I did another later post that gave an example on SPX.
Brian used a 40/50 put broken-wing-butterfly with upper long strike 5-15 points in the money in the original rules.
And the scale-in point occurs if the price exceeds 10 points above the long strikes.
The 40/50 refers to the upper wing being 40 points wide and the lower wing being 50 points wide on the RUT.
When adapting the strategy to a different asset, the main thing that needs to be changed is the wing widths because the index size is different.
Also, the exact point values for scaling in and adjusting no longer apply. One would need to decide based on the expiration graph’s visuals or translate the RUT’s point values to the point value of SPX.
As one becomes familiar with trading the Rhino on the RUT, they will know when to adjust based on where the price is in relation to the expiration graph rather than calculating points distances.
In the next article, let’s go over how to set up the SPX Rhino and give some visuals on when and how to perform the adjustments on the SPX Rhino.
We hope you enjoyed this article on the rhino strategy. Will you try it on SPX?
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
Would be helpful to know if the SPX Rhino, or any SPX trade discussed, can be used with 0DTE.
Interesting idea. I don’t see why not, although it would move fairly quickly.