Trading Butterfly Spreads
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- čas přidán 18. 08. 2020
- In this video, Danielle (the Butterfly Queen herself), breaks down one of her favorite trading strategies. Learn how to set up a butterfly and why butterfly setups are so powerful for directional setups. This strategy is a great way to grow small accounts.
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Danielle Shay is the VP of Options at Simpler Trading. As a former teacher, her goal is to help traders grasp the basics that make trading simpler -- no matter their skill level. She has the keen ability to relay trading information in small tangible bits where even the ‘best’ of traders will find her insights useful and easy to understand. Her primary focus is on trend-following, directional strategies via options trading, though she covers stocks and ETFs as well.
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Why trade alone when you can access over 100 years of trading experience right at your fingertips? Simple strategies, proven tools, real-time alerts and an interactive trading community await. Keep it simpler with Simpler Trading.
www.SimplerTrading.com
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#ButterflySetups #Options #DanielleShay
you are such an amazing teacher, you obviously have an excellent intimate understanding of butterflies and I thank you kindly for taking the time to share your expertise.
I guess Im asking randomly but does someone know a method to get back into an instagram account..?
I was dumb forgot the password. I would love any help you can offer me!
Thank you. This has helped me get clear understanding of the butterfly strategy!
Been watching a lot of Butterfly videos lately. This is a different, yet, good one. I would have liked to see the risk profiles of your trades. Thanks.
Thank you. That is a common piece of feedback I get. I have never really used the risk profile graph, but I've heard many people find it helpful so I should start using it more!
I saw this video last year and it has changed my trading. I really appreciate being able to add this to the choices in trading
Thanks for posting
Beautifully explained and beautiful period!
A great explanation on how butterflies work. Thank you
Thank you. It's always easier to explain with live trades!
Oh my gosh, thank you for explaining it in a way I could understand. I was so confused by some of the other videos with white boards. Excellent!
Glad it was helpful!
Excellent and clear to understand explanation of strategy. Thank you!
Glad it helped you!
Hi, Danielle, do you use the target price as the body of butterfly regardless of the delta? Do you use daily chart to make your trade decision? Do you use stop loss and what is your exit strategy? As always, very much appreciated your videos.
Hi Danielle, I really find this to be a very helpful video for optimising the butterfly setup. Thank you! In the Netflix spread where you went wider and had an awesome risk/reward, ($7736 to $2264)- My question is.... what was your profit probability? Even with such a risk to reward, we have a number called "profit probability" that shows up on the performance profile. What would you say that percentage should be.... ie. how should we look at profit probability when optimizing the butterfly spread. I thank you in advance for your advice & time. Have a great day😊
Thanks for your video Danielle. Wondering if you take P/L chart, vega & delta into consideration for butterfly strategy or purely R:R ratio? Seems the butterfly trades make money when it come close to expiration on the P/L chart.
Very informative. Thank you for sharing.
Great video! What are your thoughts on broken wing butterfly over a regular butterfly?
thanks danielle shay, that was very information. what is the difference between butterfly and iron butterfly?
Hi, Danielle, would you use the same strategy for indexes like SPX and RUT? Thanks for sharing!
Danielle, I have seen many of your videos and thinking about taking your course. The question is this: If the price hits above 525 and stays below 550, what is the benefit of the long 575 calls? Isn't it better to buy a call debit spread instead? What is the benefit / additional value of the butterfly in this set up? Lower cost? Higher probability of "hitting the target" as you say? Something else?
Hey Danielle. Appreciate the video. How do you manage assignment w/ a small account? Or is that always a risk?
Very nice explanation of the Butterfly Strategy. Thank you.
finally someone who can explain this correctly and simple!!! subscribe already...
Great video. Question. I see you have the squeeze indicator on your chart, what is the one underneath?
Hey! Great video. What's that indicator below the Squeeze?
Great video , I absolutely understood butterflies now. What’s the risk of being assigned
Thanks Danielle. Great explanation of the butterfly!!
Thanks Tim!
Great walkthrough!
I like trading flies as one day plays Thursday to Friday targeting move to the strike with the highest OI. I find flies always work best in high implied volatility in the underlying. Do you mean more towards just a long call or put in low volatility where the dollars for delta is much lower?
Saw another vid by you on butterflies, and it was too short but this vid is literally awesome. I buy long calls and puts, but in order to get a good R/R I have to add to many making my payouts higher and up to 7x my risk in profit, but makes my prob of profit harder. These will help for sure. Thank you for your precious time.
Happy to help!
Danielle: Having JUST finished your 7 STOCKS to Success & KICK START TO VICTORY I am hyped! You had mentioned you have more information on YOU TUBE...hence---why I am here. I placed by first first two FLIES today....lets see how well I listened! AFTER just checking other COMMENTS...I must tell everyone who sees this....TAKE THE CORSE...TAKE THE COURSE!!! It will pay for itself in no time!!!!!!!!!!!!!!! Donald
Can we get a 24 month update? 🤣
Thanks for explaining it clearly. Couple of question which screener option you use to find out set up (I felt like one thing you use is less volatile stocks - lower beta) 2) How to choose days of expiry 3) which level to use of fibbnacci
hi thanks Danielle .could please tell me in a directional trade when should use the butterfly and when vertical spread?
I use them in the same situations - when I have a directional trade with a specific target. I pretty much always prefer a fly because it's cheaper and has better risk reward, but I will pass on a fly and do a debit spread instead when: A. the strikes don't fit (i.e. the third strike doesn't have any premium, there isn't enough volume) B. The spreads are too wide and it makes doing three separate legs difficult C. The price is the same for a debit spread and a fly D. I think the ticker may trade past the center strike. Having a fly where the price trades through the center price is NOT ideal but you can leg out of a spread easier so that is why I would chose it in that instance. Hope that helps!
Thank you. Your explanation about Butterfly is really great.
Happy you find it helpful!
There's a major problem with Butterflies... To get the max profit, you must allow the options to expire with the stock inside your strike zone. In doing so, you will likely end up short a few hundred stock or long a few hundred shares of stock. If the market gaps up or down the next trading day, all of your profits are gone - and possibly more. A realistic expectation is to expect to get 50% and to close the trade before expiration. If you get more, great. But at least you will not end up long or short stock that: a) your account may not be able to afford. And b) could wipe out a large chunk of your capital if the market gaps up or down.
I think we all know the risks. Trading is about risk, that's how/why we get paid.
Of course that's not true on indexes. But good point thank you
Thanks for sharing this.
Great Danielle, I have been trying to understand these. I will back up in time and work some of these to be sure I understand it. Bill
Very well explained, thank you!
Great video. Quick question though. You compared the cost of the butterfly to a long call. But how would it compare to call debit/bull spread?
the butterfly is cheaper but with the butterfly you have to get also the timing right, with the debit spread if it goes in the money for example 1 month before expiration you will get the whole spread as profit, whereas with a butterfly having the first leg spread in the money, depending also on the volatility, maybe you'd get half at most
Trying to learn Butterfly strategy and came across your explanation video on Butterfly, you are excellent teacher best video so far for me !
9999999
book if the Panden
I can’t believe I understood this the first time!!!!!
Great explanation. Thank you!
You're welcome!
Thank you so much. Its like someone just turned on the lights and I can see everything I was missing. You explained it so well and kept it simple without dragging on.
The most clear and concise explanation I’ve come across on butterflies 👏🏽
Great video!
I used butterflies on QQQ and SPY all the time. However, I find it difficult to get my orders filled with lower volume options like NFLX, GOOG, MSFT or CRM. I can't never get my orders filled at even above mid-price quote.
How much are you willing to pay extra (from mid-price) to get your orders filled?
This was exactly my concern and primarily why i came this video. So how far of an expiration would you usually pick?
The 2 oscillating indicators you use, are they standard on TOS?
Learned a lot, was not a butterfly fan, seemed confusing but I’ll try it! 😊 thanks
Any luck?
thank you for such clear explanation and how butterfly work with the fibonacci target and time frame. I always bought just calls thinking butterfly is too complicated. Your lesson made it clear for me like no one else.
Great explanation, Danielle. Really appreciate the great information. Thank you!
so you would do the 1,2,1 balanced butterfly on the call side if you want the stock to go up? and you would do the same on the Put side if you want to stock to go down? or am I backwards? I ask because there is another video where it is mentioned this is backwards but they are explaining the Broken butterfly method.
Love the video!!!
Is this TurboVZO on useThinkScrips by chance or where can I find it?
Danielle, this is excellent! Thank you so much. I've been practicing setting these up, studying, and feel I am ready to do it soon. Quick question please: I can close out the spread anytime it's in a favorable range (profitable), between now and expiration, right? I plan to leave at least 2 weeks, so there's plenty of time for it to land on the strike price at which I sell my calls. Thank you in advance for any help.
I've been trading these pretty regularly ever since seeing this video around the time you posted. They key I have found with them is you want to trade shorter time windows with them. I think the 10-15 day area is the best (2-3 trading weeks). In that window, theta and gamma (the rate of change of delta) increases meaning that your short strikes (the ones that do most of the heavy lifting in a butterfly regarding profits) decay more quickly. So, the answer is yes, you can close them out anytime you are up but the profits will not really start to accelerate until the last week or so of the trade, so keep that in mind.
@@TheAutisticlove Super helpful, thank you Chris. ; )
@@TheAutisticlove If butterflies work well with range bound stocks, do you have a few you concentrate on?
@@ImaginationBlue I prefer Iron Condors for that style. Yes, it's less profits but they have a much wider break even. Choppiness can get wild sometimes and you don't want to get knocked out for a loss in the violence.
Thanks For simple explanation of butterfly options strategy... How do you generally close these types of order... Do you sell the whole butterflies altogether or sell one by one seperately.
Thank you so much for the explanation. How much time out should one go about buying a butterfly? I papertraded this strategy before and the ticket went straight to my targeted strike in a short period of time and I didn't see any increase in P/L. Thank you for any insights on this.
I’ve been wondering the same thing here. Since she mentioned theta decay I’m thinking it’s to be held in the 1-3 week time frame, so not something to buy and then get rid of at the end of the day.
also she’s using a daily chart for her setups which will show more of the long term setups and that makes me think she’s holding on to these for a while, since daily setups take a while to actually play out
Nice explanation on the butterflies. Thanks.
I'm glad ou found it helpful!
Loved the video, Danielle. I just started with Simpler Trading and would really like to begin trading butterflies with my tiny accounts
In the last example, I didn't get the logic behind the third leg option, 2x nflx C @575. If the stock were to rise past the 550 call, wouldn't there be excessive loss?
Decent content with good explanation. Tks Danielle.
also, when do you know when to close your position? what % do you go after? like for me ill go after 80% gains on cover calls and secure cover puts, or do you just let it go when OTM? what about when its ITM? what do you do?
I just found your video and im glad I did, Im trying to build a small account back up and I took quite a few loses just doing calls and puts. New sub 🙂
Welcome aboard! :)
Very helpful. Thank you. Can I ask what software program you are using in the video? What do you recommend?
Great example!! Quick question.. if I’m expecting a breakout to happen at a specific expiration date do I have to choose that same expiration contract to get the Max profit right ? I mean the weekly ?
Danielle, how did you get future earnings to show up in your Think or swim screen? I cannot find that button. Driving me crazy. Thanks for the videos.
If the price hits your target prior expiration can you close the trade, and would that give you max profit? Thank you for the great video!
No because you have to sell the contracts you bought to get into the trade and that will eat away at your profit...That's what they won't tell you unless you ask...if it were that easy everybody would be a options trading millionaire.
Great video and explanation.
Great video, question: let's say I choose 20 days in the option chain to buy it. if I already on 50% profit in my 2nd day can I sell it or need to wait until the expiration date?
U can sell
For Max profit do you sell at the strike price or hope that market closes that day on the strike price?
thanks so much for the GREAT video!!! got a few questions. saw that you picked 28 days out, whats the min days you would go to make the butterfly? #2 whats the delta you usually pick to go by it? #3what level of options in TOS, do you need to have to make this type of trades?
Thank you for showing your live account. Many on CZcams hide the edges of the software and I assume they are paper trading.
Of course, we value transparency!
Great explanation, Danielle - much appreciated! One question though - do you take it all the way to expiration?
From Danielle - I normally close my trades when they hit the target (which is the center strike). Sometimes it's close to expiration, sometimes it's not. I usually try to close 2-3 days prior to expiration so I don't get down to the wire but the only way to get a pin (max profit) is to hold. It's riskier but I will do it sometimes.
@@SimplerTrading - Ok, thanks!
Do you have a video of how you defend the butterfly if it blows past your strikes? Or managing it for a stop loss of any kind?
I would love to know how you were able to star out your account information with TOS. I'm doing a couple option basics videos for friends and coworkers and mainly want to star out my account number but can't figure out how
Brian: It is difficult to explain in words, but if you call TOS HELP DESK, they can show you with a remote access very easily.
On the left side of TOS, where it says 'Account Info' there are tiny little triangles under where it says 'option buying power and net liq' and you can click on that little carrot and then switch privacy on and off.
@@danielleshay2573 AWESOME. Thank You
Danielle, clear expaination and very details. what is ST_turbo and ST_SqueezePRO. if my direction is downtrend, can i use butterfly to trade?
this may sound like a stupid question but, if you set up a butterfly, and you are in the green, can you close it early to take profits like a regular call or put option; or do you have to hold it until expiration? Thanks in advance if anyone answers
One reason the Butterfly cost less was that it expired 2 weeks earlier (11 DTE) than the long call (25 DTE) referred to for comparison purposes!
Hey Danielle, I have taken your Stacked Profits class and I like the butterfly strategy, but I never seem to get filled at the "mid" price. Any tips? Thanks in advance! Love the Simpler fam!
Awesome! Well, without knowing the trades, it's hard to say. My guesses would be that you're trading tickers that have wide spreads, in which case the exact mid price isn't super critical, or that you're using alerts and you are getting in too late. If you're going off of someone's alerts and you wait a few hours, price could have moved substantially by then, especially if it's on a ticker like AMZN or TSLA. Also, if you're getting in when the ticker is going bid, it's hard to get the mid price. To get good prices, the best thing to do is enter before it takes off, when price is pulled back. It's a lot easier to bid for an order then. If it's in a momentum move and running away, you likely have to pay above mid.
@@danielleshay2573 I will take a look at the width of the spreads in the future. I am not using anyone's alerts, just trying to apply what I have been learning from you guys. Thanks for the responce!
Do you vary your flies depending on target etc... as far as ITM or OTM trades using a butterfly, one of my mentors swears by OTM flies and rarely pays more than 1.00 per contract for them?
I use both, it just depends on the market condition. In a trending market, it's easy to use OTM flies for a very low risk and high reward situation, because the trend up into the target zone of the fly is easy to determine. During a volatile or choppy market (like what we are in now) I usually do my flies wider because if the fly stays OTM for too long, the premium decays quickly and you lose the entire debit. OTM is less risky in terms of dollars because they are cheaper but ITM is better when you want the trade to hold value through volatility. Please note I am talking about the first long strike in the fly. The center strike is always OTM and at the target zone. - Danielle
@@SimplerTrading I just put a butterfly on DISCA - solely based on oversold conditions, my main tool is Elliott wave along with a few other confirming indicators, but it bounced off the 200 ema and according to the 50-10 emas as I mentioned, extremely oversold , so my target 🎯 ( body of the butterfly) is 55 strike , I bought a 42.50 and a 67.50 to make it wide, they are in the May 21 options I paid 2.75 per contract. BTW thanks Danielle for your video it really helps with the understanding of a butterfly;-))
Amazing that the best butterfly option trade information strategy and cheap premium price.
How do you sell the contracts? Do you sell all three at once? Why does one of the butterfly say sell and two say buy?
Thanks. Great explanation. Hope to see more vids of your current trades with butterflies and other strategies.
Thanks for such a great video on B/Fly. The sell strike will always be the first resistance. correct? So, if we are doing this weekly, can I pick the weekly R1 as the sell strike and R2 as Long2 call and R1-(R2-R1) as Long1 call?
Thanks for the great explanation! What if you're wrong about the stock and it moves the opposite direction? At what point do you give up on the trade?
Personally I have been using these strats to impose risk management, (which can be hard if you are option trading, prices move quick). I try to structure the trade in a way that if it goes to zero the loss falls into the realm of my risk profile. Right now that is a $100 loss level per trade. So I try to structure it below that. The upside of these trades is that they usually do not lose value that fast since you have contracts moving in opposite directions. Plus you can extend the timeline out and give yourself more time at a small increase in cost.....
For me, it depends on the size of the trade...if I have a full size position then usually I will cut it at 50% but if it's a smaller position then I usually risk the entire debit paid and I wait to see if it will come back. This is because, often times around a 50% stop, that is exactly where the low comes in...I think it's easier to risk the full debit paid and put on less risk overall than to risk double and take it off at 50% stop loss. Generally I determine my exit based on the chart setup, not by the % gain or loss.
Do you do any other adjustments other than closing and opening butterflies?
Do you ever partially close one and open with the same money?
Do you ever diagnose some of the strikes?
Do you ever do broken wings?
Excellently stated here! I trade flies all the time and you are spot on with all that you've said. Ignore the negative comments. If people don't know how to trade them, or would rather not trade them, that's their choice. I've never understood the "why" behind people like that posting negative comments or berating the author of the thread. Nobody "forced" them to watch the video, or is forcing them to put their money on the line. Butterflies work and they work very, very well. Again, thanks for taking the time to make this video.
Very nice job, just subscribed. You're not concerned about the lower delta (ie probability)?
What the best practice for days to expiration for the butterfly?
Silly question. Where can you find in TOS what you paid for the butterfly? I did one on META yesterday and wanted to check price before I closed it? I know I can add & subtract to get a guesstimate of the current price, but is there somehow I can see cost at a glance? Many thanks for the video.
very sick! Finally someone who explains it perfect!
Great video and explanation
Danielle, thank you for the video. My question is after you find your Target strike to sell your short strikes and you build your long call “wings”, should the lower long call be ITM (below current price) OTM (just above current price) or does it matter? You said to build the wings as much as you can afford, however, do you get a better return by building the lower long call ITM? Thank you
when you order the course, you feel like you walked into the middle of a presentation two months late
Undoubtedly the simplest explanation of the butterfly. No In-the-know jargon and straight to the point
Thank you!
what's the best broker to trade with this strategy?
Quick question to the TOS community:
I have about a $15k account which I have grown from $6k making speculative calls in this recent bull market. How do I get permissions to trade covered spreads without the buying power effect being like $30-$40K. I would really like to start hedging risk with these spreads but TOS won't let me sell covered options. I am thinking about switching to tastyworks (already made an account) but I love think or swim. Any help is appreciated!
i just bought my first butterfly today on nvidia and i am not sure how exactly to get rid of it i have tos. can you help?
When do you need to be concerned about assignment?
great example.. i loved the "dart board" idea however.. its maybe not perfect? thanks for the help however!
how do you know which stock to set up a butterfly?
It was really well done and helpful. Thank you!
great video!
Do you ever target a specific delta range for these plays?!
Hey Danielle, love your ability to teach in a way I can understand by being clear and descriptive - would you review a BF that is targeting a trade on the downside target, please?
Hey Danielle, you're such a great mentor. My partner has a hard time selling his Call Butterfly Option in Charles Schwab Streetsmart Edge expiring in 12 more days. It doesn't get filled, no matter what positive Limit Credit he puts in, even on numbers lower than the current BID. Can you do a video tutorial on Selling to Close a Call Butterfly Spread? Thanks!
Hi Danielle, thank you for putting this video up! Is the stoploss on these small account butterfly setups essentially just the entire premium paid? I noticed you mentioned you like to set up these butterfly entries so that they typically cost ~5% of your account, considering other positions in play.
Once again, really really appreciate these posts!
I'm glad you found the video helpful! It depends how expensive the fly is. If it's over $5.00, I usually use a 50% stop loss. If they are cheaper, I may not. Typically my stop depends on the setup, rather than the %. For example, if I'm long and the ticker clearly reverses and goes south, I will get out regardless of what % the trade is down. I don't get a lot of max losses - those are usually earnings trades that I note are all or nothing.
That makes perfect sense. At the end of the day it's really all about capital preservation, and one's own personal risk management style. I have been employing similar tactics as you mentioned, and I understand what you're saying. Thanks for the timely response! Super appreciated!!