Not sure how a butterfly works or makes money?

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 [...]

New to option trading?

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 [...]

I just exited the MCD butterfly I posted on the blog on 3/25.

I exited with a credit of 3.10.

I originally paid 3.11 for the trade so I lost .01 on 2 spreads or $2 plus commissions.

There is still 10 days left to expiration and MCD has not hit the expiration day break even yet, so according to the trading plan for the trade, I should have stayed in. But it feels like MCD will move higher and I wanted to get out before I started losing more money. For the 7 trading days I was in the trade, 5 days were up days.

There seems to be some resistance at 77 so the trade might still make money. Since I know that people have read it on the blog and might be following the trade, I decided to just exit here.

With the stock seemingly trading in a 73 – 77 range this one [...]

Just added a new trade in my personal portfolio today.

It’s a classic butterfly spread on MCD – McDonald’s.

The trade was Buy 2 April 70 puts, Sell 4 April 75 Puts, Buy 2 April 80 Puts for a debit of 3.11 per spread or a total cost of $622.

It’s a cheap trade that will make money if MCD stays between 73.12 and 76.92.

Here’s the graph:

The trade has a 48% probaility of profit at expiration. But I dont want to stay until expiration. I want to make 10-20% and get out within 2 weeks. This will happen if MCD stays where it is, or if the volatility in MCD options goes down.

With the end of the quarter coming up next week I am expecting the markets to go strong and higher into April. That will result in a drop in volatility and hopefully a quick profit.

If this trades needs an [...]

The following is from a Barrons article by STEVEN M. SEARS

Butterfly Option Trade on Sprint

IF THE FEDERAL RESERVE can print money, so can you. All you need is a little cash, and a ton of nerve.

Consider Sprint Nextel (ticker: S). The $4 stock is a dog; it has declined 12% in the past three months, and yet trading volumes are surging, demonstrating that distressed equities – what institutional investors call penny stocks – are incredibly alluring in this market because of the potential to make double- or triple-digit returns on small price movements.

If you want to make a potential 500% return on one trade, Credit Suisse advised clients Tuesday to position for Sprint to move to $5 by January.

The bank told institutional clients to consider a “call fly” that entails buying January $4 calls and January $6 calls, and selling twice as many January $5 calls.

With the stock around $4, [...]

Would you like a 17% one day return?

That’s what one of my members got today. He actually did much better than I did. I am still in this trade. He was able to get in at a much better price than I did yesterday and already exited the trade today.

The trade is a butterfly on IBM. For members, it is May Trade #2

I got into the trade for a debit of 1.24, but this member got in at 1.15. For 4 contracts his cost was $460.

He sold the butterfly and exited the trade for 1.35 today. That’s a gain of $80 and a return of 17.39% – in one day!

I myself am up a little less than 10% so far.  Hopefully I too will be out in a couple more days with a nice double digit gain.