Hello Seth,

Wanted to say thanks for the Webinar presentations provided on the Options Tribe site. It is
very interesting to observe the many styles and approaches people are implementing.

As I’m getting closer to starting the options program, I’ve been thinking about what style would
be suited to my personality the most. I have a little bit of an idea but I don’t want to reach any
conclusions until I see all the possibilities for the course and discussions with you as my mentor.

I know that you’re very busy with all the mentoring to others traders and I don’t want to take
up your time until my time comes as a student, but I would like to know about your specific
approach to trading—the butterfly as a style or strategy—and the thinking behind that.
For example, do you see it as taking advantage of anticipated movement in the market or
predominantly as a change in the price of options? Or do you see it as a business in which you
are managing options contract inventory or as something else?

I am almost done reading the book you recommended on the Natenberg’s Options Volatility
and Pricing, but I still have to get to McMillan’s book.

You’re probably wondering on when I will be ready to start the course I’m hoping to be ready in
five to six weeks’ time. To me it’s like an eternity, but a good opportunity to practice patience.

Jaro from Down Under

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Hi Jaro,

It’s nice to hear from you, and great job on putting in the hard work to read the options classics.
This can only help you in the future.

In answer to your question, my butterfly trading philosophy arises from the fact that at-
the-money butterfly trading takes maximum advantage of the heaviest amount of time
premium being sold along the options chain—those options nearest to the money. This is
important to me, as the kind of options trading that we teach at SMB Options involves making
“trade adjustments” during the trade. I consider those adjustments the “expenses” against
which my “revenues”—the short time premium that I have sold—are “spent”.

It’s my view that if trades commence with the maximum amount of short-time premium,
options traders have that much “in the bank” to spend on adjustments. As we go into the
mentoring process, you’ll get a better understanding of what I mean. With other strategies such
as iron condors, commencing far out of the money, I have less to “spend” on adjustments—
which in my mind is less advantageous. And if the market stays still for a little bit, the butterfly
gives you the best chance of meeting your income goals quickly. Finally, I like the initial delta
curves of properly initiated butterflies—nice and flat J.

I don’t mean to be negative about iron condors. We do teach and trade them here at SMB.
And many of the greatest options traders in the world exclusively trade iron condors. But my
personality lends itself to the butterfly, for all of the reasons I mentioned. Your personality may
be different. We’ll discover that together in the mentoring process.

And thanks for writing!

Seth