FishrCoAg said:
12thMan86 said:
McInnis 03 said:
So y'all asked yesterday if I started to hedge a fall with long put butterflies to advise. Here's one I just bought.
SPX
JUL 17
1 BUY TO OPEN 2920 PUT
2 SELL TO OPEN 2900 PUT
1 BUT TO OPEN 2880 PUT
Risk $.30
Max Profit (if SPX 2900 on JUL 17) $20
I'm also entering bids for a 29Jun put butterfly for 3065/3050/3035 at $.35 and 17Jun same strikes $.45
They have not yet filled.
These all likely expire worthless, but that's why it's a hedge.
remember, these don't max out unless the center strike is hit right at the end of the day on expiration.
I feel like I'm missing something. Isn't the risk 20.30 if it closes at 2880 at expiration? NVM. I suck at math today
Nope your risk is simply the debit paid. The best way to play butterflies, especially ones that are not wide ( the wider the wings, the better chance you have to catch more...but they are more expensive) is to sell them when you've made 3 to 10 times your money and not try to "pin" or max out the trade. I've f'd myself a few times doing that.
The other thing that gets you is getting to the puts you sold, the center strike. If we woke up on Monday and the market was at 2900, you'd think " damn I just hit it". But in reality those center strike puts you sold would still have a lot of life. The trade would make money, probably 4x. But cashing out at 1.20 is not cashing out at 20 bucks.
The way I like to play flies is short term. I put on a 2960/3000/3040 for 1.40 for Friday next week. Will it hit? Prolly not. But if we get back to the mean (21 ema) next week between Wednesday and Friday, that will be a nice hit. I had a zoom fly that I put on Monday for 2.30. 220-240-260. 240 was the expected move per TOS. YESTERDAY when zoom was 225 I sold it for 5.30. I could have waited and chance that I get more today, but that would have not been a good call. I took the 2.5x and moved on. ZM closed around 210 I think. If it's back up to 23o or so tomorrow I'll be pissed but I just Take base hits.
Some of the simpler trading guys like to use butterfly's at earnings. Say for example it's Thursday. Apple announces after hours. It's currently trading at 225. And the expected move is 15 bucks, you just don't know which way. Remember, the expected move is based on current volatility, and IS NOT an exact science.
So why not create a 230-240-250 butterfly that expires tomorrow? You want to see those center strikes lose value fast? Do a one day trade! That trade would probably cost a buck and you could make 10. If you wake up the next day and apple is at 240, the fly is probably worth 4 or 5 bucks and you have to decide if you want to hold on to it until the afternoon to make the full 10. I'll usually watch them and tr to get as much as I can, but I don't get greedy. Like with Zoom yesterday. Most of those big ballers on simpler will buy 5 or 10. Then you can leg out to get some free trades working. I have pinned a few in the last 30 mins and it's glorious. I'm a gambling mo fo and sometimes a guy with 30 yrs experience that teaches will use his insight to guess a direction on a mon, wed, or Friday afternoon on SPX. They usually are 8 to 10:1. Sometimes they hit, sometimes they don't. So you place the butterfly trade at 2 ish pm and you can let it CASH SETTLE. You don't have to close anything and it doesn't count as a day trade! With the volatility he usually does them 15-20 wide and will place the sold strikes where there is high open interest on both the put and call side at a certain number. Nice round numbers are common. Like 3000. It's crazy how it works.
Y'all should look into selling credit spreads and buying back for less. Takes advantage of theta decay and volatility. I typically do them at or slightly in the money and while the usually pay 1:1 or 3:2, my hit rate is pretty solid. Using that same Apple example, if you think Apple is going to 235 by next Friday. Sell the 225/220 credit spread for 2.60. That money goes in your account, and your risk is the spread with minus your credit, or 2.40. Instead of selling a naked put, you are selling a put and buying a cheaper put for insurance. If you want to make more, widen the spread. As long as Apple closes above 225 at expiration, you keep the credit. I usually buy them back when I've made 80% of the max profit, or in this case around .50. So sell for 2.60, buy back for .50. All day long. Did it on crowdstrike today. Sold 90/85 PCS ON Monday for 2.80. Bought back today for .40. 2.40 overall profit. However If APPLE is at 235, you just let it expire worthless and keep it ALL!
Think the market is going to drop but don't want to pay up for SPY PUTS? Look at what a call credit spread costs that's ITM. You can probably sell a 305/310 ccs for 3 or 3.50 right now. Total guess I'm not in front of computer. But your max risk is 1.50. 4 of those would put up to 1400 bucks in your pocket for $600 risk. If the market keeps going up, maybe you have to buy it back for MORE than you paid, but you'd won't get smoked like owning a straight up put that's going against you. I see a lot of guys buy way OTM calls and outs on here. It works great with it moves your way, but if it doesn't, you can get smokes in a hurry. Theta positive if you can!
I was going to answer that in two sentences and now look at this crap!
Sorry for the rant. I love this stuff! Good night and Gig em!
