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NOV ‘10 RUT SKEWED BUTTERFLY CLOSED FOR PROFIT

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Our Nov 10 Skewed Butterfly trade gave us 12% this month. We love the ‘magic bows’ on these trades that can many times produce much better profits than even what our flat expiration line gives u at expiration. To learn more about these trades you can subscribe to our free newsletter

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NOV ‘10 RUT IRON BUTTERFLY IRON CONDOR CLOSED


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Closed our Nov 10 Iron Condor Iron Butterfly Trade for just over 4% profit. To learn more about how to trade these particular trades join our new newsletter.

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Iron Condor – Getting My Life Back


When I first began trading the iron condor, my game plan was to leave the trade on all the way to the bitter end.

After I placed the trade, I would just leave it be until expiration day where the options would expire worthless and disappear into option heaven.

Back then I believed this was the best way to play the trade, because not only would I not have to pay my broker to take the trades off – I would also be able to keep the entire amount.

But I don’t think this way anymore.

After a lot of sleepless nights, too many close calls, a couple of near ulcers, I’ve changed the way I run my Iron Condor business.

Now – as soon as I place the trade, I set a contingent order with my broker to buy back the call spread – as well as the put spread – once I’ve made the majority of the profit in each spread.

Here’s an example: Let’s say I sold an iron condor on the index XYZ for a total of one dollar – or around fifty cents each side.

After I place the trade, I would set up two contingent orders with my broker. One would be to buy back the upper half spread of the iron condor for ten cents – and the other to buy back the lower half spread of the condor for five or ten cents.

Now a lot of iron condor traders might say this would be a dumb thing to do.

But after trading these every month for years now – I don’t agree.

Okay, maybe it’s true that doing this will cause me to make less profit than if I were to just hold the trade through expiration and let the options expire worthless.

But not necessarily.

And also let’s look at exactly how much we are talking about here. The amount of money we’re talking about leaving on the table here is actually not that significant.

What is significant – at least to me – is that by taking off those positions, I’ve LOCKED IN the lions share of the profit available in the trade.

AND – my risk in the trade has been reduced.

I have also given myself the opportunity to generate ADDED gains from my overall position – without adding any extra risk.

Let me show you what I am talking about here:

A lot of times, the value in options will evaporate really quickly during a trade. I’ve actually seen options lose most of their value in just a few days.

Going back to our example – let’s pretend that I put an iron condor on about 40 days until expiration. For the trade I receive around a 1.00 credit. Fifty cents for each credit spread on either end of the position.

Then, as soon as I put the trade on, our underlying starts to move down and continues doing so for a couple trading sessions.

4 days after I put the trade on, I see that I can buy back my CALL side of the Iron Condor for.10.

Now, if I don’t do anything and just let the trade continue to play – what I am actually doing is risking that upper side spread margin – for the next thirty six days until expiration – for just ten little dollars of additional potential profit. And that doesn’t really seem that worth it to me.

But – if I instead just spend the ten measly bucks to pull off that upper credit spread – I will LOCK IN the majority of the profit that was available in that spread – and earn a great return on investment in just four days.

Then, if XYZ bounces back up – which it will often do after a drop – I no longer have any risk on the upside.

And – for icing on the cake – if it DOES head back up we have the opportunity to ‘resell’ those identical credit spreads – the same ones we just bought back for ten cents – for potentially the same amount of credit we originally sold them for – or perhaps even more. Doing this it’s possible to wind up with an even greater ROI then were were hoping for when we first initialized the iron condor trade.

But let’s just say we didn’t ‘re sell’ any options. Let’s just assume that we closed the trade entirely when our contingent orders were hit. In this case what we’ve done is eliminated risk (good thing) – freed up capital (good thing) – enlarged our return on investment over the number of days we have been in the trade (good thing) – and gotten completely out of the market a while lot sooner than if we had to sit around and wait until expiration day rolls around (and in my opinion this is a good thing too!).

Trading this way lets me take a ‘vacation’ away from the markets until it’s time to put on another trade. It allows me to peel myself away from my trading monitor and get out and enjoy all the other things in my life I’m interested in – without always thinking about how my iron condor is performing – or fretting about what I’ll do if there is a sudden stock market crash.

And for me, being able to have that monthly ‘window of time’ away from the markets – that ‘break’ where I can completely clear my head and forget all about ‘options’, and ‘strike prices’ and ‘standard deviations’ and ‘deltas’ – being able to just get away from the computer and go out and do other things without having that little constant nagging ‘I have a current live trade on’ stress and worry – being able to go to bed at night without an ‘option trading care in the world’ and quickly fall into a thick, deep, snoring sleep – sound as a baby…

These things are priceless.

Or at the very least they are WITHOUT A DOUBT worth every penny of the ridiculously small .20 cents or so of potential profit left on the table in exchange for getting out of my monthly iron condor trade early – at what is STILL an incredible monthly return.

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AUG ‘10 OEX BUTTERFLY SPREAD – CLOSED


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OEX Butterfly closed for profit. We ran this butterfly up to expiration as the the OEX was trading right near our short strikes. Stay tuned as shortly we will start to post our results for the J Trade going back to January

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July ’10 Butterfly Spread – Iron Condor #2 Closed


This was our second RUT Butterfly we put on this month. This trade was placed with RUT trading around 658. Immediately upon placing the trade, the index, along with the rest of the market, started a big down move, eventually traveling more than 10% before bouncing back up some today. Despite the move, thanks to the magic of adjustments, we closed the trade out at a respectable profit yesterday.

See various risk graphs below….

Our position right before starting to close it out

Our position right before starting to close it out

Unwinding position. A guaranteed profit is locked in here, with more future profit possible if RUT makes a significant move either way

Unwinding position. A guaranteed profit is locked in here, with more future profit possible if RUT makes a significant move either way

Trade initially placed with RUT trading around 658. Trade taken off with RUT trading at 590

Trade initially placed with RUT trading around 658. Trade taken off with RUT trading at 590

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July ’10 Butterfly Spread – Iron Condor Closed


julyrutbutter2ABOVE: Position as we start to unwind it. Profit target hit.

julyrutbutter3ABOVE: Left on one of our extra long calls as lottery ticket.
Our profit goal is locked in.

Closed out our July Butterfly / Iron Condor for just under 9% profit.

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July ‘10 RUT BUTTERFLY SPREAD – IRON CONDOR OPENED


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Our July Iron Condor / Butterfly Spread is off and running. So far so good as we have a profit already and have our ‘ whipsaw curbs’ in place while retaining a good theta. Stay tuned…

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JUNE ‘10 RUT BUTTERFLY SPREAD – IRON CONDOR CLOSED


Closed out our last June Iron Condor Butterfly Spread today for right under a 5% gain. Todays big down move in reaction to employment numbers put the position right at the sweet spot at the open. Rising vols initially hurt the position a bit, however as the morning progressed, what appeared to be some friday theta release helped push the position up over 5% where we decided to just close it out rather than wait and see what monday morning might bring. Several risk graphs below at various stages of unwinding position…

june1
Above: Initial Position at Open

june21Above: Starting to unwind position. We held this position for about an
hour while trying to get a ‘better than quoted’ fill. Once again, fills were
difficult today. Trades that are usually very easily filled at the mid simply
won’t go and it takes quite a bit of time to finally get a decent fill.

june3Above: Majority of position removed.

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Iron Condor – Butterfly Spread – Current June Butterfly Trade


June RUT Butterfly Spread

June RUT Butterfly Spread

This is our 3rd Butterfly Spread we’ve traded this month. Even with this very volatile month because of our new ‘flex’ adjustments we’ve been able to bring in a profit on each one. This trade is just now starting to show a profit and we expect (knock on wood) to close this out profitably early next week.

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Iron Condor Butterfly Magic Put Adjustment


During the ‘flash crash’ where the dow sunk 1000 points we had an iron butterlfy position on that performed remarkably well thanks to a simple, cheap, way out of the money put adjustment we had made earlier in the day.

picture-6Taken at 11:40 AM

A couple hours before the big drop, we put on a simple put adjustment due to our position hitting some greek criteria. When the crash happened, that cheap little way out of the money put quickly blew our position (which was showing a loss of around -2.5% at the beginning of the day) into a profitable position of over +20% as the market fell out of bed.

Above and below see some risk graph screenshots that were taken of this position as the market was going down…

picture-13Taken at 12:09 PM

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