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Broken Wing Butterfly | Options Trading Concepts

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A broken wing butterfly is a tastytrade favorite when it comes to the butterfly realm. When routed correctly, we can be long a butterfly for a credit, and eliminate our risk to one side! New to options trading? Mike breaks down trading strategies and concepts in a visual way for beginner to intermediate investors. Click the link below to learn more: http://ow.ly/Y0C8h Follow: @doughTraderMike Use the hashtag #whiteboard to discover more options trading concepts! ======== tastytrade.com ======== Finally a financial network for traders, built by traders. Hosted by Tom Sosnoff and Tony Battista, tastytrade is a real financial network with 8 hours of live programming five days a week during market hours. From pop culture to advanced investment strategies, tastytrade has a broad spectrum of content for viewers of all kinds! Tune in and learn how to trade options successfully and make the most of your investments! Watch tastytrade LIVE daily Monday-Friday 7am-3:30pmCT: http://ow.ly/EbzUU Subscribe to our YouTube channel: https://www.youtube.com/user/tastytrade1?sub_confirmation=1 Follow tastytrade: Twitter: https://twitter.com/tastytrade Facebook: https://www.facebook.com/tastytrade LinkedIn: http://www.linkedin.com/company/tastytrade Instagram: http://instagram.com/tastytrade Pinterest: http://www.pinterest.com/tastytrade/
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Text Comments (12)
Peter Chung (3 months ago)
Great job Mike. Even I understand this lol. When would be ideal situations to use this BWB?
Peter Chung (3 months ago)
Excellent - makes sense. Thank you Mike.
tastytrade (3 months ago)
Thanks! I really like BWB's when IV is high, or if there is a big volatility skew. The higher the IV, the wider we can make them and still collect a credit, which means moves towards the strikes benefit us more than if it was a narrow BWB.
Vignesh Dhakshinamoorthy (5 months ago)
I love the whole concept of butterflies, you get to trade the ITM contracts without having to pay an arm and a leg. But I have trouble getting orders filled. What price do we quote when placing the order to ensure it gets filled? The midpoint is enough or may be quote few cents more?
tastytrade (3 months ago)
The mid-point is our fair market price, but the natural price is where we'll get filled almost immediately.
Hamed Dadgour (1 year ago)
Great presentation. I will try a BWB soon :)
hktmc300 (1 year ago)
can you defend BWB when the stock goes against you? if yes, what are the ways to defend BWB. thanks.
tastytrade (1 year ago)
There's really not many things we can do - in some cases we can just roll the short put or call that is tested and let the far long option expire, and take off the "long spread" portion of the BWB, essentially turning it into a short put or call trade, and hope that the option moves OTM.
T Hirano (2 years ago)
Have you heard about the the BWB in which the legs are equal in distance like a normal butterfly; however, the amount of options are varied. For example, I have seen people used 2/3/1 ratios of amount of options vs the normal 1/2/1. I also seen a combo in which varied ratios and varied distant between the legs (as your video presentation described very well). Is there a video that explains the differences, advantages, and disadvantages of using the varied amount of options in a normal butterfly?
Vignesh Dhakshinamoorthy (5 months ago)
Did you try placing these trades? I saw a video like this on another channel and they called it Unbalanced butterfly spread 🦋
tastytrade (2 years ago)
That is interesting! I have not heard of many custom ratios like that, and unfortunately we don't have a video on that. I think the easiest thing you can do is figure out the embedded spreads and see how that would affect the trade. For example, a 2/3/1 put butterfly that was traded out of the money, would have two embedded short put spreads (2/2), and one long put spread (1/1). Merge these numbers and you get (2/3/1). thinking about that, it could probably be traded for a credit, and is probably very much like the broken wing butterfly in that sense. The trader would be taking extra risk on the short put spread side by selling two, and only buying one long put spread. They would benefit from all options expiring OTM if traded for a credit, but they would also benefit from the stock price being on the short strike at expiration, as that would be max profit. Worst case scenario is the stock price drops too far and they experience a loss from the two short put spreads. I hope this helps!

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