The butterfly strategy beckons. Today’s video provides an introduction into this multi-leg spread. Within you’ll learn:

1. What is the difference between a call fly and put fly?
2. When to use the put fly.
3. How to pick your strikes and expiration date.
4. How to adjust the spread width to widen your profit range.
5. Why I still favor bear puts when going bearish directional.

Enjoy!

Notes

Butterflies

3 Variations

Put Fly: use with strikes BELOW the stock price = OTM, more liquid

1. Bearish
2. Closer to the money for more neutral
3. Far OTM for aggressively bearish

Call Fly: use with strikes ABOVE the stock price = OTM, more liquid

1. Bullish
2. Closer to the money for more neutral
3. Far OTM for aggressively bullish

Iron Fly

Put Fly:

1-2-1 = Buy the body, sell wings. Target is to have the stock sit in the middle (body)

$100 stock

100-95-90 put fly.

Bought 100 put, Sold (2) 95 put, Bought 90 put

100/95 bear put spread + 95/90 bull put spread

If stock is at $95, you capture max gain on bear put & max gain on bull put.

Why a put fly instead of other bear trades?

1. Long put: Most expensive
2. Bear put vertical: less expensive
3. Put butterfly: Cheapest

Cheap directional bet.

Expensive stock: Long put is too expensive, bear put is too expensive, put fly could be the answer.

Risk of a put fly is the COST. Debit trade.

Reward of a put fly is the spread width – cost.

Buy 100/95/90 put fly for $1 debit. Reward $4.

Time Frame: shorter-term (< 1 month). More aggressive. Make money faster if right, lose money faster if wrong. Longer-term (> 1 month). More conservative. Make money slower if right, lose money slower if wrong.

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