{"id":11498,"date":"2011-05-12T15:40:30","date_gmt":"2011-05-12T19:40:30","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=11498"},"modified":"2021-05-07T11:26:17","modified_gmt":"2021-05-07T15:26:17","slug":"traders-ask-is-it-better-to-neutralize-a-double-butterfly-or-simply-close-it","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/traders-ask-is-it-better-to-neutralize-a-double-butterfly-or-simply-close-it","title":{"rendered":"Traders Ask: Is it better to neutralize a double butterfly or simply close it?"},"content":{"rendered":"

Martin asks:
\n<\/strong><\/p>\n

I have a question about one of your first webinars\u00a0 involving\u00a0 the February butterfly. At\u00a0 the end of the\u00a0trade it appears that \u00a0 instead of closing the trade completely you just neutralized\u00a0 it. What was the reason that you handled it that way ? What is the advantage of\u00a0 neutralizing the trade\u00a0 instead of closing it?:<\/strong><\/p>\n

Martin is asking about a trade in which there were two butterfly spreads open at the same time. The two spreads created two large zones of profitability such that if the market price of the SPX index stayed in\u00a0 a\u00a0 certain price range within those zones, the trade could be exited at a profit. The trade had hit a profit level that in my judgement was about as good as it was going to get, so at that point I had decided to exit the trade and take my profits.<\/p>\n

I had a choice–I could have attempted to exit the trade by simply selling both butterflies. That would have worked theoretically, but in reality, as the market is always in motion, the likelihood is that one of my sell orders would have been triggered as the market moved towards the center of one of the butterflies and I would have ended up chasing the price downward to sell my other butterfly. This is not always the case, but having been burned during\u00a0 this process more than once, I have decided that I am not going to expose myself to that problem.<\/p>\n

The technique we’ve developed to close double butterflies involves buying <\/strong>a condor with the long strikes cancelling the short strikes of the two butterflies. When done in the right proportion, this has the effect of completely neutralizing the trade so that\u00a0 no market movement in any direction\u00a0 changes the P and L of the trade through to expiration. The benefit of handling the exit this way is that\u00a0 it effectively \u00a0 closes both butterflies in one transaction and therefore eliminates the execution risk of trying to close both butterflies simultaneously. I have found that I consistently get good results when handling the exit\u00a0 of a double butterfly this way.<\/p>\n

Thanks for your question, Martin. I hope that this helps to improve your trading results!<\/p>\n

There are only 4 days left until the launch of SMB’s Options Training Program and the Options Tribe.\u00a0\u00a0 In our first “tribe” meeting we’ll be interviewing one of the finest buttefly traders I have ever known. I’m sure that\u00a0 you’ll find it both\u00a0 interesting and informative.\u00a0 This link will take you to the registration form for the free webinar on Monday: <\/strong>https:\/\/www3.gotomeeting.com\/register\/318813102 Hope to see you there! <\/strong><\/p>\n


\n<\/strong>Seth Freudberg<\/p>\n

Director, SMB Options Training Program<\/p>\n","protected":false},"excerpt":{"rendered":"

Martin asks: I have a question about one of your first webinars\u00a0 involving\u00a0 the February butterfly. At\u00a0 the end of the\u00a0trade it appears that \u00a0 instead of closing the trade completely you just neutralized\u00a0 it. What was the reason that you handled it that way ? What is the advantage of\u00a0 neutralizing the trade\u00a0 instead of closing it?: Martin is … Read More<\/a><\/p>\n","protected":false},"author":741,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,1402,1584,908,1373],"tags":[1646,1598],"class_list":["post-11498","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-options-education","category-seth-freudbergs-blogs","category-traders-ask","category-trading-lesson","tag-options-spreads","tag-options-strategies","no-post-thumbnail"],"yoast_head":"\nTraders Ask: Is it better to neutralize a double butterfly or simply close it? | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/traders-ask-is-it-better-to-neutralize-a-double-butterfly-or-simply-close-it\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Traders Ask: Is it better to neutralize a double butterfly or simply close it? | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Martin asks: I have a question about one of your first webinars\u00a0 involving\u00a0 the February butterfly. 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