No problem.

This video is in response to a question from a member. He wanted to know how the trade made money and why he had to exit the trade to get his profit. The answer to the second part of the question is because the butterfly is a debit trade and so you pay for the trade. As the trade makes money, the debit or value of the spread increase and when you sell it, you get back more than what you paid. Hopefully. If you do nothing, you risk getting assigned on the short options.

How the trade works as well as short explainations of the iron butterfly and split strike butterfly as shown as well. The butterfly in the video was an OptionGenius trade that resulted in a 20% profit. As you can see, the butterfly can and does give off large gains. But before you start trading them, you should also know how to adjust the trade if it goes against you. A little bit of that is discussed towards the end of the video.

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Butterfly Option Strategy Basics is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Not sure what the difference is between a butterfly, a condor, or a mouse?

(Hint: there is no strategy called “mouse”)

In this video I open up one of my personal trading accounts to show you 4 trades that are all of a different strategy. We have a naked put in oil futures options, a butterfly in Berkshire Hathaway, an iron condor in LVS, and a straddle in LVS. All four trades are doing well.

Watch the video to see how they look on the risk graphs as well as how they are made up and work.

In the optiongenius portfolio we do not do naked puts or straddles, but we do a lot of iron condors and some butterflies. In times of low volatility with the VIX below 30 these non directional strategies work wonderfully. In high volatility markets, they can work as well but with adjustments and a quicker trigger finger to take profits quickly.

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Option Strategies – 4 Strategies You Can Trade is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

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Butterfly Trade Update is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Never mind that they are most risky than monthly options. But the quick money and high returns are sometimes too hard to resist.

Ok then, here is a trade setup I use. When these conditions are met I trade credit spreads. More details are in the video. And in the members area, I added a video of me looking for, analyzing, and putting on a live trade with real money using this setup.

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Weekly Option Trade Setup is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Hope you have a wonderful, happy, and well rested holiday!

Here is an update of the MCD and JNJ butterfly trades I showed you in my last video. Had to make an adjustment to each because of the strong down move in the market which also affected these stocks.

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MCD and JNJ Butterfly Trade Adjustments is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

This is a sample of the types of videos that are produced for Option Genius members which anyone can join from our homepage.

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2 Butterfly Option Trades is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

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Iron Condor Trading Lesson 3: Risk Management is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

That is the topic is this video. In it I go over how to get started, how to calculate how much money you need to get started, what you can make, and some simple guidelines I wish I knew when I got started.

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I Wanna Be A Covered Call Trader is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

In this video I go over the math of the iron condor. How to calculate the credit, the max loss, the margin, and the potential return on investment

Iron Condor Calculations – The Math Behind The Condor is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

http://optiongenius.com/blog/mcd-butterfly/

One reader posted an excellent comment that I decided to create a new post about. Here is what he asked:

As of Friday’s close, the 75 fly would cost $3.15 for a BE range of 73.16 76.86. Max profit at the 75 strike (if held to exp day)is approx $180 for a 57% ROI.

With a April/May 75 Calender Call Spread, (with a +1 IV skew),the cost is .83 for a similar BE range: 73.4576.46. Max profit at 75 strike is only $62 (compared to $180 for 75 fly), but the ROI is 75% (compared to 57% ROI for fly).

So here’s the $64 question: given these two ‘range-bound’ option strategies that offers nearly identical BE profit ranges, would it not make ‘more’ sense to go for the 75 Cal, given it’s purported superior Risk/Reward profile, in addition to savings on comm (2 leg vs 4 leg spread)?
Plz enlighten me – esp. on how decrease in IV affects Calender spreads.

Thanx

Great question. I am not going to check his math because for the answer it does not matter. But in his analysis he feels that the Calendar spread on MCD would be a better trade than the butterfly spread I put on.

There are several ways to answer this so I am just going to ramble on.

First, the max ROI is not really important because I am not going to stick around for the max roi. I want to make my 15-20% and get out. It is virtually impossible to nail the max roi on one of these especially as crazy as the greeks get closer to expiration.

Second, since the breakeven range is about the same, you really can do either trade. So one is not better than the other. What makes the difference is how the options will behave – or how you think they will behave.

Third, my opinion was that prices will move up. When stock prices move up, option volatility goes down. When option volatility goes down, option premium goes down as well. So with the butterfly, the at the money option, (which we sold) will lose value the fastest if volatility comes down. And thus the butterfly spread could be making money very quickly if there is a strong move higher.

The butterfly makes money when volatility goes down. The calendar makes money when volatility rises, especially in the back (long) month.

So in this case, we have a Calendar with the short option in April, and the long option in May. MCD also has earnings on 4/21 which is in the May cycle. So May options will retain their premium because the implied volatility of the May options will remain stable until after earnings when they will drop. So a Calendar spread would work here as well.

BUT, the calendar loses money if volatility drops fast because the value of the long option drops as well. In this case, this might not happen because of earnings. Normally, you want to put on a calendar when you think volatility is at a low point and will increase. Calendars make money quickly whenever volatility jumps.

I hope I earned the $64.

I chose the butterfly because I think MCD will go higher into quarter end and into earnings. and so the butterfly gives me a better chance to make my money faster and exit quicker than the calendar. Of course I could be wrong and MCD could go the other way. In that case the Calendar would have been better. But both are doable in this situation.

Why Trade a Butterfly Over A Calendar? is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com