Just Bought the Mar 22 expiration 2340-2350-2360 Call Butterfly in SPX for $4.50 Debit at 10:24 am central. This trade expires at the end of day today. Market seems quiet so far after big down move yesterday. Between 2345 and 2355 I do really well. As SPX moves above 2355 or below 2345 we would start to lose money and I would look to get out . The goal is to sell out the trade that I paid $4.50 for $5 credit, could be within an hour, and the profit would be about 10%. If the spread that I paid $4.50 debit goes near $3.75, would get out. Total cost and Risk of trade is $450, the debit.
Just started our new 2 week online class, “The Double Barrel Calendar”, and wanted to share the class trade we put on live yesterday.
SPX was around 2370. B 1 Apr 5 2390 C and Sell 1 Mar 22 2390 C. B 1 Apr 5 2350 P and S 1 Mar 22 2350 P .Debit of $14.05 and Margin or Risk of $1405.
Join us in tomorrow’s Class as we analyze this trade and cover more on this interesting strategy that serves as an alternative to the Iron Condor when Implied Volatility levels are low, which they are now. VIX is currently at 11.74. The foundation of this strategy as well as an Iron Condor is the short strangle. In this trade, we are selling the 2390 C and 2350 P in the Mar 22 expiration. Unlike the Iron Condor, which will buy the long hedges in the same expiration, we buy our long hedges in the Double Barrel Calendar in a further out expiration and the same strikes as the shorts. In this trade, our longs are in the Apr 5 expiration. In a low Implied Volatility environment, this strategy gives us wider room or Breakevens than a single Calendar Trade.
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The butterfly is one of the most popular options strategies. There are many different structures for a butterfly, from neutral to more bullish or bearish structures. Also, in the set-up you can have iron butterflies that involve the selling of a put and call vertical and also the all-call or all-put option butterfly.
One of the best butterfly strategies is what we call a “time bomb butterfly.” With this strategy you will be buying an all-call or all-put butterfly in an expiry and a strike price of your choosing.
Below are two examples.
The first is an earnings play, which is one of the best times to use the time bomb butterfly. In this example GOOGL made a large move to the upside.
The day before an earnings release we purchase an all-call butterfly centered 50 points above the current market price. With GOOGL trading at $680 our all-call butterfly is centered at $730.
The number of contracts and the width of the fly are up to you. The more contracts and the wider your fly the more expensive the fly will be. In this example, we have 10-point wide wings. The trade put on in this manner can be done very inexpensively. On Oct. 22, we buy a 740 call, a 720 call and sell two 730 calls for $3.25 for a minor net debit.
This will generally be a binomial trade, meaning you will either win or lose all of your investment, so it is best to keep these trades small. After putting this trade on the night before earnings, GOOGL was up more than $52 the day and we had a 1600% profit: The 740 call is $3.35, the 720 call is $14.45 and the two 730 short calls are $745.
It’s time to close the trade. Of course GOOGL just as easily could have gone down and we would have lost our investment, so its best to keep your investment small.
In our next example, we will use an all-put time bomb butterfly to speculate on the overall market direction using the SPX. Here we bought an all-put butterfly on Nov. 6, 40 points below where the SPX was trading and one week before options expiration. We set the fly up with 20-point wings.
This trade was entered on a Friday. On Monday morning, even though the price had not yet entered the body of our fly, we still had a hefty profit.
Indeed, you may even want to close the trade here or since it is such a low investment, in this case less than $100 for the butterfly, we can wait until later in the week because, as we get closer to expiration, more profit will accumulate if we are inside the body of the fly.
By Friday morning’s open — which is when these SPX options expire — the SPX was trading around 2040 and we were up more than 800%.
3/7/17 Rut Calendar
RUT is trading now at 1383. I would look to establish a calendar position by selling one March 24 exp 1380 put, and buying one Apr 7 exp 1380 put at around $7.00.
My profit target is 10% so I would enter an order to sell my calendar for $7.70
When do I adjust?
I will adjust when the price comes within a 5 point range of break even which would currently be 1355 on the downside and 1406 on the upside. Create another calendar with the midpoint 15 to 20 points away from where RUT is trading at that time, which would cut the position delta by 2/3 with the adjustment. I would then take off at a 10% gain or loss.
If you would like to learn more about calendars, take a look at a recent webinar that we did on calendars.
Today on Sheridan Mentoring TV, I put on a Live TSLA Pre-Earnings Calendar. Sheridan Mentoring TV airs Tuesday’s and Thursday’s at 1 pm central and I usually will put on a live trade every class and also explain and track every trade for educational purposes. TSLA at time of the trade was $228.46. Today’s trade I bought the Feb 10 expiration 230 Calls and sold the Jan 20 Expiration 230 calls for a debit of $5.60. The idea here is that Calendars have 2 risks, price and the Implied Volatility decreasing, and we are trying to eliminate Volatility risk. I do that by buying the expiration that will be affected by earnings and sell an expiration that will not be affected by earnings. I am looking to make around 10% for every 1 Calendar I buy, about $55 0r $60 (10% of $560). If TSLA breaks under 224 or 237 in next few days, I will instruct what to do in the blog. My short options expire in 10 days and my longs in 20 days. I will be out of this trade in 7 days, avoiding the price risk of earnings.
Tomorrow we launch our 1st online class of the year, How to manage a 10K Weekly’s Portfolio. This interactive class spans 4 weeks and meets twice per week. All classes are recorded. Sign up on the front page of Sheridan Mentoring and we will see you at 1 pm central tomorrow.
Dan Sheridan firstname.lastname@example.org
Can you do an Iron Condor when VIX is 13.5 and the SPX is 30 points away from the all time highs? Yes, it depends on how you structure and manage the trade. This is the trade I just put on for SOM TV with SPX around $2247. Sell 1 Feb 3 2315 Call and Buy 1 Feb 3 2325 Call. Sell 1 Feb 3 2150 Put and Buy 1 Feb 3 2140 Put. Total Credit $2.20 credit. The deltas of the short options were around 15. The goal on the trade is to make 10% and not lose more than 12% of the risk or margin of the trade, $780. If the delta of the short call or put gets to 23 this week. I will look to either buy a call on the upside or put on the downside to cut my position deltas 1/2 or 2/3. I sold the Credit Spread for $2.20 credit, if it goes to around $1.40, I would buy back the Iron Condor for $1.40 debit, making around 10% on my capital.
Join us tomorrow, January 4, for a free webinar at 1 pm central titled: How to Manage a $10K Weekly Portfolio. Sign up on the Sheridan Mentoring home page.
Tuesday on SOM TV, I put on a live BWB and am talking about the trade today after big move in SPX yesterday.The trade is in Jan 6 expiration and was done with SPX around 2209. Buy 1 Jan 2200 put Sell 2 Jan 2170 puts and Buy 1 Jan 2130 put. The debit was 2.05 and the margin or risk for this 1 unit trade is $1205 dollars, which is the risk on the downside. The risk on the upside is about $205 .I started the trade 1.75 deltas short on this $1200 trade. During SOM TV Tuesday, I mentioned if SPX hit 2223 yesterday, I would look at the trade and probably sell a put credit spread to narrow the upside of the Broken Wing Butterfly. The original Butterfly width was 30 on the upside and 40 on the downside. By adjusting with a put credit spread, selling the 2190-2200 put credit spread in January, we would be decreasing the upside width to 20 and reducing the short delta exposure on the upside. If you didn’t do anything to the trade, the price is now around $1.35 with SPX at 2243 as of 10:09 am central today Dec 8. If somebody did nothing, they would be down $70 right now divided by $1205 of capital or about 5 1/2% today after huge move yesterday. Not bad but the key is risk management. If someone dealt with this yesterday at 2223 which I mentioned as adjustment point, you’d be singing in the rain like Fred Astaire. Key point: when you adjust is more important than actual adjustment.
Dan Sheridan email@example.com
Most of the live Income Trades (delta neutral, positive theta, selling strategies) that students in our community and myself had on today did much better than expected, and in some cases did great. lets discuss at least 2 of the trades I had on as examples.
Trade #1 did absolutely great today, and it was a basic non-Directional trade that made 20% today with the market going drastically against us. The trade was a balanced Butterfly trade in SPX in the August 19 expiration, and the width of the Butterfly was 40.The trade was put on yesterday when SPX was around 2105.The trade was put on using all Calls. Here is the trade using a 1 contract example. Buy 1 2065 and sell 2 2105’s and Buy 1 2145. I bought some units at $5.40, $5.30, and $5.20. A unit could be 1-2-1 or 2-4-2 or 3-6-3, whatever size you are trading at. In this trade, we want the price of SPX to be near the short strike of 2105. Today at around 9:45 am central time, SPX was around $2059 and I got out of my entire trade that I bought around $5.30 and sold it for a $6.40 Credit, a return of about 20%. How did that happen with SPX moving about 50-60 points from the short strike, which is bad for this trade? Did theta get us the high return in 1 day? No. VIX was up about 3 points at 8:45 am central, this is a short Vega trade, shouldn’t an increase in Implied Volatility hurt an Short Vega at-the- money Butterfly trade? It should, but this was a bit of an unusual situation. Usually when SPX closes around $2110 which it did yesterday, the VIX would be between 11-15 because if SPX is 30-35 points from its all time high, VIX would be in the lower end of the range. But yesterday the VIX was around 18 because of the UK vote, sort of an Earnings situation for the market, an Event that could trigger a big Gap move. With VIX up about 3 at 8:45 am central, we still made money from the implied Volatility because the Volatility increases in the individual strikes of our Butterfly worked in our favor. Just because the VIX went up doesn’t mean we had to lose on a short Vega trade. The key is what happened with the volatility of each of the strikes of the Butterfly combined.
Trade #2 was a Heart stopper. It was a 1 Day Iron Butterfly in SPX that I put on Wednesday and took off today for about a scratch, but was thrilled. A scratch means I basically broke even on the trade but covered my commissions. The Trade was in in SPX and I entered it Wednesday with the Index at $2090. It was a 2 Day trade and I used the June 24 expiration which expires today. I bought the 2100 call and sold 2090 Call. In the Puts, I bought the 2080 Put and sold the 2090 Put. The Iron Butterfly was put on Wednesday for a credit of $9.40 with SPX at $2090. Today I bought the spread back for a debit of $9.35. How could I have made any money on this trade since the SPX moved over 50 points away from my sweet spot which is the short strike? Part of the answer is that when SPX was at $2059 and I bought the spread back, we still had almost 6 hours left of Trading and the market was pricing in the fact that a big rally back was possible. The other part of the answer is the fact that although the VIX was up, this short Vega trade made money from the Volatility because each of the strikes of the Butterfly didn’t all move up the same. The takeaway is that Greeks like Vega and Theta are Theoretical numbers and in real life like today, don’t always move like they say they should. The answer is to really understand the Greeks and become a good Option Craftsmen.
Go to Sheridanmentoring.com and check out, fresh off the press, the archives of last weeks 2 day Chicago Seminar we put on.
At Sheridan Options Mentoring, we’re proud to offer informational resources for people who are interested in learning more about options trading, options strategies, and more. We’re pleased to announce our annual options seminar, hosted by our very own Dan Sheridan in Chicago. This year’s seminary will take place on June 16th and 17th and will be streamed live.
Learn Options Trading Secrets from Industry Experts
The live stream of the options seminar will feature presentations from Dan Sheridan, founder of Sheridan Options Mentoring as well as the following speakers:
- Brian Overby, Senior Options Analyst at TradeKing and author of The Options Playbook
- Russell Rhoads, Senior Instructor at CBOE’s Options Institute
- Tom Sosnoff, Co-Founder of ThinkorSwim and founder of TastyTrade
- Steve Basigo, Veteran Retail Trader
- Karen Bruton, AKA “Karen the Super Trader”
- Mark Fenton, Senior Mentor at Sheridan Mentoring and Veteran Retail Trader
- Jimm Bittman, speaking about credit spreads
- Dino Karahalios, Veteran Retail Trader
Live Stream Our Options Trading Seminar
The live stream seminar will get you full access to each session, both days, streamed live in real time.
You’ll be able to ask any questions you may have to a moderator on our live chat box, and you’ll have access to HD recordings of each session in case you miss one or want to rewatch it.
Downloadable copies of all the presenters’ materials will also be offered, and you’ll have access to all of the material for at least six months.
Seminar Time, Dates and Details
This year’s event will be at the University of Chicago’s Gleacher Center at 450 N. Cityfront Plaza in Chicago. The seminar is from 7:30 a.m. to 4:30 p.m. on Thursday, June 16, and from 8 a.m. to 4:30 p.m. Details for each speaker will be announced shortly, but space is limited for the seminar, so you’ll want to book your spot soon!
You’ll learn about different options trading strategies as well as trade options, including Iron Condor methodologies, Butterfly strategies, and much more.
Tickets for the streamed seminar are $437 per person.
To learn more about our summertime options trading seminar, contact us today. We want you to succeed at trading!
#1 Learn the Craft
This stage takes a while and possibly much longer depending on how you learn the craft. Most folk pick a directional approach to finding trades, and that is a very difficult proposition.
We pick trades based on 3 Things: Probabilities, Time decay, and a good plan for each trade. As you learn the craft, a good understanding of the Greeks and the ins and outs of the different strategies is essential.
#2 Practice the Craft
This stage in my opinion means trading a plan and 30-50 live trades proving and practicing the plan under the tutelage of someone very experienced at Risk Management. That is what we do here at Sheridan Mentoring.
I don’t know another mentoring company or coaching service in the Options Trading business that teaches you the business in this manner. This is crucial. Most folks who do 30-50 live trades on their own will usually end up in a heap of trouble!
#3 Discipline in the Craft
This is where most people “bite the dust”. Our mentors have there hands full with students who come in with many bad habits, including being directional on every trade and not used to following a plan.
Our coaching on a trading plan and 30-40 live trades usually takes 6-12 months. Our aim is to develop good risk management habits in the students so when they are done, they can be capable of some independence on their own and know how to run an Option Trading Business.
Good luck Trading!