Broken Wing Butterfly - FREE Options Basics Course - Part 12/20

[@johnseeall]

You, one of the few educators that made it easy to understand

[@VolatilityTradingStrategies]

Appreciate it! There's actually a full re-boot of this series coming with 20 new videos on the options strategies, plus a course so stay tuned for that if interested.

[@TacticalOptionsTrading]

Nice content! I love butterflies in all their forms!

[@jeanlu6976]

outstanding explanations as the end about the greeks

[@scottabergermd]

Brent, love your videos, and just found them recently. You may want to point out that you can vary the number of contracts on either side, too, which moves the profit further up or down. Great stuff, thank you.

[@VolatilityTradingStrategies]

Yes, good point, but ratio spreads probably deserve their own videos so I'll get to those eventually :)

[@דודסולומון-ט7מ]

Hello what is the take profit ?

[@alkeshshah1777]

hi sir how i found in option chain CHANGE IN OPEN INTEREST ? IN spx every 5 minit please please

[@Oct-jy4dz]

Can that strategy be applied on call side? Does it shift the number of contracts as the way on the put side? Thanks for your time.

[@astrometaqua411]

in one of the examples, it's was a debit trade - any edge for a debit or credit entry for BWB? Can it be a credit trade for respective sides of the wings spectrum?

[@VolatilityTradingStrategies]

There are times when a Broken Wing Butterfly gets a credit yes. With our VXX trades in our Volatility Trend Strategy for example, sometimes they do get a credit which means the high side is actually profitable on a Volatility spike. It really just depends on the width of your wings and where you centre your middle strike. If you want to set them up so one side has a profit, you often can.

[@tomiskind]

Great stuff, thanks Brent!

[@deepakshahtx]

Very clear explanation of the strategy.

[@TraderDT]

U used puts in this video. Does it make a difference if one uses all calls or all puts with these flies?

[@VolatilityTradingStrategies]

You'll want to keep your Butterfly Puts or Calls on the right side directionally, so that you can try to keep the short strike out of the money for as long as possible. So if the price range you're expecting is down, use Puts. If it's up, you can use Calls. The pricing will work out much better that way.

[@deRooverMedia]

Great content, Brent! Thanks for putting this together.

[@krvze.e.production5343]

Great video! what happened if all 4 legs are ITM due to market volatility? do you just let your broker to settle since it's defined risk?

[@VolatilityTradingStrategies]

I almost always close out my butterflies before expiration. Unless it's very very clear that they will all expire out of the money, then you can leave them. But otherwise, since one of the legs will often be near the money or in the money, you don't want to wait for assignment on any of those legs. I just close the trade before expiration in most cases.

[@TacticalOptionsTrading]

I agree with VTS, I will usually close out a butterfly prior to expiration. It is just easier to do that. The most common way to deal with the Butterfly on expiration day is to simply close the trade. This way there's no risk of assignment at expiration. A Butterfly on expiration day or a few days before expiration, that is trading near the short strikes, will have a lot of gamma risk too. that it may not be worth staying in the trade to try and eek out the last bit of profit and risk being assigned. If you are trading a Call Butterfly and and the stock was above the highest strike price at expiration then all of your strikes would be in the money and at expiration would all be exercised and cancel each other out and your trade would be at max loss. The same is true of you were trading a put fly. If the stock were lower than you lowest strike price than all of your strikes would be in the money and would all be exercised at expiration and cancel each other out but you would be at a max loss. Your max loss is the width of the widest spread minus the credit you already received. But if half your butterfly is in the money and half out, this is where it can be tricky with assignment. Side note, if you trade butterflies on the SPX, the SPX is cash settled. You can let it go into expiration and because it is cash settled, you will not be assigned long or short shares.

[@DefWorlds]

Good cover of atm bwbs. What happens if they are otm?

[@VolatilityTradingStrategies]

You mean as they approach expiry? If they are out of the money then it would just be a losing trade. As long as position sizing was correct then it's no big deal, losing trades happen. But just be careful with them and be ready to close them before expiration, because if any of the legs are in the money they can get assigned and then it's a problem for the following day. So it's a good idea to close the ones that are close heading into the last day or so.

[@DatBarberCanCut]

Hey Brent, great lesson as always! I sure would love to see a video with (the opposite) with all calls instead of puts. Ex: Selling 2 Calls in the middle & buying a call on each end of 1 further of course for a broken wing 'CALL' butterfly. How would a calls version profit/playout/etc

[@VolatilityTradingStrategies]

So mathematically it's the same thing, you can also do Call Butterflies if the price you're expecting is higher than the current. You'd just position your trade depending on where you think the price is most likely going. Remember, while it's not a deal breaker, with options you do want to try as often as possible to have the short strikes not go too far in the money as there is always a chance of early assignment. You'll want to do Puts if the price is likely to go lower so the Put strike is less in the money, and Calls if the price is likely going higher, to keep those short Calls out of the money as long as possible.

[@options888]

Amazing video. Understood more about the BWB strategy. Quick question tho, given your experience in trading options, what is your favourite most used / profitable option strategy?

[@VolatilityTradingStrategies]

I can't really rank them because they all do differently in different market environments. The long term return of most of what I do is targeting that 12-24% range long term, and I don't really trade anything that I expect won't hit those numbers for 10+ years. But if you want a list of my main strategies: Defensive Rotation (trend following systematic, ETFs) Tactical Balanced (trend following systematic, ETFs) Strategic Tail Risk (trend following systematic, ETFs) Vol Trend (counter trend short volatility, options) VIX Options (discretionary market neutral, options) Condor Calendar (market neutral, options) Vol Step (directional short vol, options) Earnings Plays (vega harvesting, options) Directional Flies (discretionary, options) Lotto Ticket (Opportunistic, options) Calendar Roll (Market neutral, options) Pairs Trading (opportunist, options) Throw away hedge (portfolio protection, options) Off the top of my head, I'm probably missing several :)

[@etherjoe505]

How's the golf game Brent ? Looking forward to getting back involved in the future.

[@VolatilityTradingStrategies]

It's pretty terrible right now, I've only played a few times in the last decade but I'm hoping once I start playing regularly again I can revive my game pretty quickly. Although I'm already starting to feel a little old. In my playing days in my 20's it just seemed easier :)

[@etherjoe505]

@@VolatilityTradingStrategies I'm in my 40s and hoping to compete long drive one day. So don't give up hope 😁😁 thanks for the great content 👍

[@TraderDT]

What about Broken Wing Iron Butterflys whereby u get a credit for opening the trade? Luv to see u do a video on that strategy.

[@VolatilityTradingStrategies]

Yes I quite often do those, they work great for the same reasons. It's more directional than a normal butterfly or something like an Iron Condor, but less so than other 100% directional trades so they work well if you're confident but still want some hedging if wrong.

[@NikoNezi]

Great video! One question though. How would moving the skip strike alter the setup? For instance in the one graph it's : Buy 1 call at 55 strike Sell 2 calls at 60 Skip 65 Buy 1 call at 70 What if you instead skip 60 and sell the calls at 65? I tried something similar on optionprofitcalculator and it looked like a decent setup but I can't find any info on this alteration of the bwb.

[@VolatilityTradingStrategies]

You can custom design them with any strikes, and all you're really doing is moving different amounts of the risk from one side to the other. If the gap is smaller then it's just a little of the risk, but if you widen it you can start moving a lot more of the risk over to the other side. Just depends what you're outlook is.

[@VixCrush]

I like this series...

[@sunnys3727]

problem is if land itm then it can get complicated

[@VolatilityTradingStrategies]

Yes definitely, we always close them out before expiration. That goes with most option spreads, it's never a good idea to let them go through expiration if it's anywhere near the strikes because it can get messy if it lands between strikes.

[@davidwhitney2524]

Hi Brent, thank you for this excellent video! I am a little confused on the math and it is driving me up a wall haha. So if I am thinking the underlying might be a bit more bullish, I should have my wing to the downside further out of the money. What exactly is happening here as far as price and the math that is making it so I am cutting my risk more to the upside, and protecting me from a bull run? Like why is having the wing wider to the downside able to protect me from a big move to the upside? Thank you!!!

[@VolatilityTradingStrategies]

It's just because when you widen the wings of a butterfly it shifts the risk from one side to the other depending on which you cut. So you're not necessarily removing any risk, you're just moving it. Broken wing butterflies are for people who have a market bias, and standard equal weighted butterflies are for those who want to remain neutral.

[@davidwhitney2524]

@@VolatilityTradingStrategies So say the downside is 60 points wide and the upside is 50 points wide, you are more protected to the upside because that contract is 10 points closer to the money and has more value?

[@rgasta7765]

amazing video. How much to join?

[@VolatilityTradingStrategies]

Thanks, appreciate it! I'll get to work on bringing back the VTS Options service better than ever so check back in a few months.

[@laurencesmith9306]

Is there a service

[@VolatilityTradingStrategies]

@@laurencesmith9306 It was put on hold for a bit, but it'll be back soon! You can get on this newsletter and be notified of when that's happening in the next few months: www.volatilitytradingstrategies.com/vts-newsletter

[@IsaacWendt]

Another great video as always. I'm going to sign up in September. I know you said in another video that 10k is enough to follow the options strategy but I was wondering if you could go into more detail on each strategy and minimums and maybe minimum amounts you need to implement them and in which order. I don't think you have a video on this or maybe you go over it in the paid area. If that is the case all good i will find out next month.

[@VolatilityTradingStrategies]

The VTS Options portfolio requires the most capital to follow exactly. I trade it all based on a 10,000 model portfolio so it allows for smaller accounts, but you do need at least 5,000 to follow it, otherwise even 1 option contract would be the wrong allocations. For all the other ETF strategies they can be followed with far less capital because it's just ETF trading. So I'd say with 1,000 - 2,000 they can follow the ETF strategies. Of course because of trade fees it gets more efficient the more money someone has, but a thousand or couple thousand is fine to follow any of the other strategies. In order of importance, there's no answer here, but a few guidelines: Tactical Volatility: The highest returning strategy with the most profit potential Tactical Balanced: The most stable strategy, so it makes a great "core" holding VB Threshold: The most fun and interesting, and the highest trade frequency if people like that Defensive Rotation: The most correlated to the S&P, so as a replacement for stocks this is great

[@IsaacWendt]

@@VolatilityTradingStrategies Thanks for the reply. So when you are trading these strategies do you have individual accounts for each strategy? I know this is quite easy in IB? Or just all in one account. If you had to start trading all strategies what would you recommend the minimum amount to be? And then the minimum recommended amount to start with? Also, I noticed you have videos included as part of the strategy do some of these continue to teach on your expansive knowledge of the vol market. Thanks again for all your help. I will be signing up after the first week off September.

[@VolatilityTradingStrategies]

@@IsaacWendt For me personally I have two accounts. I have a main Interactive Brokers account that just follows my Total Portfolio Solution, so I'm invested exactly the same way as everything at VTS. Then I have a separate account at ThinkorSwim that I use for testing strategies, playing around with things that go outside of my main 5 VTS strategies, and also for making videos. So any videos you see me make, that's my TOS account which I guess could be considered my play account. But for followers, I guess there's no reason not to just have it all in one account. It would probably be easier that way, you'd just follow the recommended allocations. The current portfolio is 5 equal weights of 20% each, so you'd just check your net liquidation value every time there is a new trade to take, divide that number by 5, and allocate that capital to the trade. Should be very easy to do all in the same account. As to minimum account size, for the ETF strategies (Tactical Balanced, Tactical Volatility, VB Threshold, Defensive Rotation) those can all be followed with just a few thousand. I only trade highly liquid ETFs, and so even a couple thousand dollars can buy several shares and follow along. For VTS Options, I manage all the allocation sizes based on a model portfolio of 10,000$. So if you want to follow the VTS Options trades with the exact same allocation size, 10,000$ is the minimum. But, if you only had half that, say 4,000 or 5,000, a person can still easily follow the strategy, but they may have to skip any of the naked short puts we trade. That strategy is called "Wheel of Fun" and it's the only one that requires a decent amount of capital. Those trades are only about 1/10th of VTS Options trades, so you could skip those and take all the other ones with a lot less capital. Maybe 5,000$ or so.

[@andis9076]

You talked fast, but I get it...u just hit the point efficiently!

[@sidm4361]

Perfect!

[@rahulchahal3824]

Like this strategy

[@janly1613]

I like your video but please talk slower for dummies like me.