Playing the Quarterly’s on the SPX

Greg LoehrGeneral Comments, Options EducationLeave a Comment

This post is the first in a series that we will be publishing over the next month , tracking the hypothetical performance of broken wing butterfly trades selected by Greg Loehr of

With the end of the quarter fast approaching there are two thoughts in my mind: quarterly window-dressing and a potential slowdown in China. For the next week, which is going to dominate and move the market? No one likes to lose when they’re wrong on the direction of the market, but if you’re strictly picking higher or lower over the next week, then I say you have about a 50-50 chance of making (or losing) money.

But what if you didn’t have to lose if you’re wrong? In fact, it’s possible to make a little money, being wrong on direction, with a  popular strategy known as the   “broken wing butterfly”.

Over the next month I’m going to be tracking several different broken wing butterfly scenarios to show you how they can play out, and how it’s possible to make  some money if you’re wrong about direction, make more money if you’re right, and even set yourself up for a potential substantial gain  if you’re really right.  Of course as with all options strategies, there are scenarios where a loss would occur and with this strategy  that takes place, ironically  with a move   going too fast in the intended direction.

So, if I think China’s slow down will continue to weigh on this market, I’m going to track an SPX March 30 expiration 1360-1355-1345 put broken wing butterfly. This potential trading idea is constructed by buying one of 1360 puts, selling two of the 1355 puts, and buying one of the 1345 puts, as a spread. For tracking purposes I’m using a 30-cent credit as the entry price, which means that each spread risks $470 with a max reward of $530.

If I’m right and the market drifts lower over the next week, then this trade can really blossom into a nice winner. Taking profits at 20% wouldn’t be a bad thing, but we can always look to squeeze more depending on market conditions. And if I’m wrong and the market moves higher into the end of the quarter, then the trade expires worthless and the credit represents the profit. What I need to look out for is a 2 standard deviation move to the downside in which case a loss on the position is possible and even likely, depending on when it occurs.

I’ll be back over the next few days to update you on this, and other potential trading ideas, as the markets move.

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 commisions. 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.

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