This post is another in a series tracking the hypothetical performance of broken wing butterfly trades selected by Greg Loehr of Optionsbuzz.com.

A simple return of 9% per week on average.  That’s what my hypothetical trades in this blog over the past two months or so have done.  And although hypothetical in nature these trades were all identified and tracked using real-time pricing using options with about one week left.  Seven trades, six have been winners.  The lone loser was the only butterfly for a debit, which would have necessitated a smaller “amount at risk” as I detailed in this post.  For illustrative purposes only, if $1,000 had been used for each trade to cover the risk, then the profits would total approximately $645.  And now things can get even better.  Here’s why:

The CBOE has responded to customer requests to expand the selection of “weekly” options.  The CBOE was my trading home for nine years and I always knew that the tens-of-thousands of dollars I paid in Exchange fees were being put to good use, and this is just another example.

For the SPX, instead of just having a weekly expiration in addition to the regular month and quarterly expirations, now there are options that expire this Friday, next Friday, the Friday after that, and so on for five weeks.  For broken wing butterfly traders this expansion of option expirations is HUGE!

So take advantage of this new development, let’s look at another hypothetical trade using a weekly expiration trade that would otherwise be unavailable today if the CBOE hadn’t made this change.  Since today is Wednesday, under the old system, weekly options wouldn’t be issued until tomorrow.  But they exist today with an expiration one week from Friday.  In yesterday’s Option Tribe meeting I fielded a question about finding these types of trades in these shorter time frames.

Well, here you go:  On the SPX with the options that expire June 22, the 1255-1250-1235 put butterfly, for a net credit of $0.70.  Please note that this credit probably wouldn’t fill unless the market sells off a little bit from where it’s at, so I’ll keep that in mind in tracking the hypothetical results.  For the students that have taken advantage of SMB’s great deal on the Broken Wing Butterfly video series, you’ll notice that this trade is a little further out of the money than what I cover in the videos.  I’m looking for just a little bit of extra security due to the situation in Europe – again, something else I discussed in the Options Tribe meeting yesterday.

This particular fly, if filled at the entry credit of 70-cents, would require close to a 3 standard deviation move to the downside to really become a problem.  That represents a one day move in the SPX of about 55 points.  I would consider that a fairly safe trade, but keep in mind that each spread has a maximum theoretical risk of $930 per spread.  Check back to the SMB blog regularly to see any updates to this post.
Trade safe!

Greg Loehr

Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

Risk Disclaimer

No relevant positions.