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Option Butterfly Strategy – What is a Butterfly Spread

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Butterfly Spreads Explained Options pricing and Greeks video: https://youtu.be/UyEvVu2YmtU The best tool to learn about options strategies: https://tradeoptionswithme.com/strategy-lab Improve your trading by tracking trades: https://tradeoptionswithme.com/stock-tracker Useful Trading Resources: https://tradeoptionswithme.com/resources Follow us on: Facebook Page: https://www.facebook.com/Tradeoptionswithme/ Twitter: https://twitter.com/Louis_Options Pinterest: https://www.pinterest.com/louistradeoptionswithme/
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Text Comments (36)
Timur Topal (25 days ago)
thank tou
Snozy (1 month ago)
sorry for spam my computer glitched
Snozy (1 month ago)
Wouldn't you want to place a short butter spread when you have a high IV environment such as earnings because you know for a fact based on the Expected move it will go outside of the short strikes
TradeOptionsWithMe (1 month ago)
Thanks for your comment. First of all, it is never guaranteed that the price will go anywhere. Furthermore, the Greek Vega of a short butterfly spread is positive. This means that the butterfly spread would lose money from decreasing IV and make money from increasing IV. Events such as earnings usually are followed by a sharp IV drop which would have a quite negative effect on the short butterfly spread’s profit and loss. So even if the underlying’s price would move beyond the short strikes, the drop in IV might lead to no or only a tiny overall gain. Last but not least, if you open a short butterfly spread in a high IV environment, you won’t be able to collect as much credit which would increase your risk and decrease your max profit. In a low IV environment, you would be able to profit from an increase in IV and the payoff diagram would be much better than in a high IV environment. I really hope this helps. Let me know if you have any other questions or comments.
Londonbaby (1 month ago)
May I know how do u get 72 dollars from ?
TradeOptionsWithMe (1 month ago)
I just chose 72 Dollars as an example price for the butterfly spread examples. I said that you could open the short butterfly spread for a net credit of $0.72 and the long butterfly spread for a net debit of $0.72. But as the standard contract size of options is 100 and not 1, you have to multiply this number by 100 to get the actual price for one contract. I hope this answers your question. Otherwise, make sure to let me know.
Rachel Chen (1 month ago)
yes, the best butterfly spread explained , thank you !!!
TradeOptionsWithMe (1 month ago)
You are very welcome. It’s great to hear that you enjoyed the video.
JoePonji (2 months ago)
Can you explain when and if makes sense at all to roll a short butterfly spread?
TradeOptionsWithMe (2 months ago)
A general rule to use when rolling is that you should always try to decrease the risk of the trade. This means you would have to roll the short butterfly spread for a net credit. Otherwise, you would increase the overall risk. Unfortunately, you likely won’t be able to roll a losing short butterfly spread for a net credit most of the time. Therefore, it usually doesn’t make too much sense to roll a butterfly spread.
JoePonji (3 months ago)
Fantastic video. Subscribed
TradeOptionsWithMe (3 months ago)
Thanks a lot!
s k (6 months ago)
excellent VIDEO
TradeOptionsWithMe (6 months ago)
Thank you! I really appreciate it.
Agustin Loza (6 months ago)
You totally stole these videos from skytrader.
TradeOptionsWithMe (1 month ago)
Thanks for the feedback. However, the reason why the animations and some of the images are similar is that we use the same 3rd party software called Videoscribe (which provides the images and the animations). So I am simply using the images of the Videoscribe library which are limited to a certain amount. So obviously I will use some of the same images as other people that use the same software. Furthermore, the videos are from my own ideas, my own time put in, my own scripts, my own style etc. Finally, I am an affiliate partner of SkyViewTrading and actually actively promote them.
Agustin Loza (6 months ago)
+TradeOptionsWithMe It has nothing to do with the white board and everything to do with the same videos they provide. It's the same charts, same font , same animation, same images in the same sequence they have on their video library. It's nice that you're trying to explain option spreads, but acknowledge that these aren't you're videos instead of claiming them as your own.
TradeOptionsWithMe (6 months ago)
I stole them? First of all, I think you mean SkyViewTrading, not skytrader. Secondly, does that mean that every channel that makes whiteboard videos stole their videos from them?
Elektrindo Gading (7 months ago)
great video. learn much from this. what are the diffrences beetwen long/short call and put? what condition in market should trade in call and in what condition we should trade in put?
TradeOptionsWithMe (7 months ago)
Thanks for the comment. I recommend checking out my free options trading education here: https://tradeoptionswithme.com/options-trading-education I think my free options trading foundation masterclass or beginner course would help you most. I could answer your question here, but I really think that it would make much more sense for you to check out the resources that I just mentioned. There I explain these concepts much more in depth and with visuals. If those resources don’t help, let me know as soon as possible.
Harry Tanumiharja (7 months ago)
Louis, can u please make a real option trade (any strategy) video start from the set up how u place the order until u take the profit/realized the profit pelase? all your follower must be excited with that video. thanks
TradeOptionsWithMe (6 months ago)
Hi Harry, I just published an article that walks you through one of my short iron condor trades (just like you requested). So if you want to, you can check it out here: https://tradeoptionswithme.com/iron-condor-example-trade
TradeOptionsWithMe (7 months ago)
I will try to show that when I make the video.
Harry Tanumiharja (7 months ago)
TradeOptionsWithMe  I mean how we as a seller can get good credit when closing option sell on the broker. example: we get credit $2 and should take profit 50% = $1. How we do it on a real Tasty trade platfrom. last time I made mistake close at cheap price because still confused mindset as a seller. its best u make a matrix diagram on ur website about this. once again thanks Louis.
TradeOptionsWithMe (7 months ago)
I understand. On some of my defined risk short premium trades (e.g. iron condors), I aim for 50% of max profit. If it doesn’t reach that 50% mark, I simply cut the loss a few days before expiration. So that’s a very simple closing procedure. But depending on the situation and strategy this process may vary. So I will try to add details about taking off trades when I create the trade walkthrough video.
Harry Tanumiharja (7 months ago)
The problem is hard to find video on how to close option selling trade, mostly we have to join paid mambership to watch that video (they only show how to place option selling trade focus on tempting max profit not nax risk not how to adjust n take 50% profit).Thanks
Adrianna De Santos (9 months ago)
wow what a great video! Thank you! my question to you though, can we let these short butterfly spreads expire worthless or do we need to sell at a lower credit. Say, i have a short butterfly with a credit of 3.36. Can i let that expire worthless or buy it back lower?
TradeOptionsWithMe (9 months ago)
Thanks for the question. This is totally up to you. You can do both. Either you buy it back for less than you bought it or you let the spread expire worthless. However, I usually recommend closing such positions before expiration. It is often not worth your time (and money) to wait for the last few pennies of profit.
hazelwood55 (11 months ago)
The best explanation of butterflies I've seen.
TradeOptionsWithMe (11 months ago)
I am very happy to hear that you enjoyed the video.
maria haneff (1 year ago)
good explanation...really appreciated..
maria haneff (1 year ago)
now i got the answer on why my butterfly moves so slow...i pick a wrong shape of butterfly..lol
TradeOptionsWithMe (1 year ago)
Thank you
Raja D (1 year ago)
Good Explanation..
TradeOptionsWithMe (1 year ago)
Thanks!

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