Butterfly Trading Strategies part 2 of 3 2412
Butterfly Trading Strategies part 2 of 3, 2/4/12 John Locke in Your Success, LLC. Know what you want, make it happen! I teach traders how to improve their trading and become more profitable! www. lockeinyoursuccess. com © 2012 Locke in Your Success, LLC.
Risk Management and Profit Targets n Trade Size: 20 Butterflies to 1 RUT Call (2/1 ratio=PC 75, 000) n Planned Capital - $75, 000 n Profit Target - $7, 500 n Reduce Profit Target - if B/C ratio is altered n Max Loss - $7, 500 © 2012 Locke in Your Success, LLC.
Entry Position October Expiration 2011 © 2012 Locke in Your Success, LLC.
Entry Position October Expiration 2011 © 2012 Locke in Your Success, LLC.
Entry Position Price Chart October Expiration 2011 © 2012 Locke in Your Success, LLC.
Talk About Bad Timing! © 2012 Locke in Your Success, LLC.
We Do Nothing © 2012 Locke in Your Success, LLC.
Next Day, August 30 RUT is up another $12 © 2012 Locke in Your Success, LLC.
Implied Volatility will fall “IF” price stabilizes © 2012 Locke in Your Success, LLC.
Buy a call vertical to reduce Vega exposure © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
Price Chart © 2012 Locke in Your Success, LLC.
September 14 – 37 DTE © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
September 22 – 29 DTE © 2012 Locke in Your Success, LLC.
September 22 Matrix © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Adjustment © 2012 Locke in Your Success, LLC.
Position After Adjustment © 2012 Locke in Your Success, LLC.
October 3 – 18 DTE © 2012 Locke in Your Success, LLC.
This is serious! © 2012 Locke in Your Success, LLC.
October 3 – 18 DTE © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Roll the butterflies back 20 points © 2012 Locke in Your Success, LLC.
Oops! Don’t forget about the call. © 2012 Locke in Your Success, LLC.
Roll Back Call © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
Two days later October 5 © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Matrix © 2012 Locke in Your Success, LLC.
October 7 - 14 DTE RUT up 8 more points © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
3 out of 4 isn't bad © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
Next trading day RUT is up 20 more points © 2012 Locke in Your Success, LLC.
Analyze Graph 11 DTE © 2012 Locke in Your Success, LLC.
RUT has been all over the place © 2012 Locke in Your Success, LLC.
To correct the Theta and Vega problem … © 2012 Locke in Your Success, LLC.
I don’t want to stay here for too long but it works for now © 2012 Locke in Your Success, LLC.
2 Days Later – 9 DTE RUT is at 701 Up Another 20+ Points © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Sell the 20 butterflies © 2012 Locke in Your Success, LLC.
I sold 20 and bought 10 to cut capital in the trade © 2012 Locke in Your Success, LLC.
Go to call side to fine tune the position © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
October 14 – 7 DTE © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Price Chart © 2012 Locke in Your Success, LLC.
Adjustment © 2012 Locke in Your Success, LLC.
New Position © 2012 Locke in Your Success, LLC.
October 17 – 4 DTE © 2012 Locke in Your Success, LLC.
Price Chart © 2012 Locke in Your Success, LLC.
Greeks look good! © 2012 Locke in Your Success, LLC.
Next day RUT is up 14 points and position is negative Theta again © 2012 Locke in Your Success, LLC.
Time to get in the tent © 2012 Locke in Your Success, LLC.
Adjustment © 2012 Locke in Your Success, LLC.
Analyze Graph © 2012 Locke in Your Success, LLC.
Expiration Thursday © 2012 Locke in Your Success, LLC.
Do you want to expire the Trade? © 2012 Locke in Your Success, LLC.
If you did…. . © 2012 Locke in Your Success, LLC.
Pros n n n n Very easy trade to manage Allows for wide range of price movement Steady returns and low likelihood of big losses Potential exists for big returns Customizable to your own risk tolerance level Can trade with different instruments (RUT, SPX, NDX) Can trade with smaller size – combine RUT butterflies with IWM calls © 2012 Locke in Your Success, LLC.
Cons Expect lower returns; most likely will not make 20% - 30%/month n If RUT makes big run up late in trade, can be difficult to hit profit target (a risk with any option trade) n Profit target relies somewhat on RUT settling, or pulling back n © 2012 Locke in Your Success, LLC.
OV Examples n April 2011 Exp. : up, then down n June 2011 Exp. : moderate down n August 2011 Exp. : up, crash © 2012 Locke in Your Success, LLC.
Risk Management and Profit Targets n Trade Size: 10 Butterflies to 1 RUT Call (1/1 ratio=PC 50, 000) n Planned Capital - $50, 000 n Profit Target - $5, 000 n Reduce Profit Target - if B/C ratio is altered Example 0. 66/1 = ½ profit target – 0. 33/1 = ¼ profit target n Max Loss - $5, 000 © 2012 Locke in Your Success, LLC.
- Slides: 65
