This post is another in a series that we will be publishing over the next month , tracking the hypothetical performance of broken wing butterfly trades selected by Greg Loehr of Optionsbuzz.com.
Just yesterday I talked about a hypothetical AAPL put broken wing butterfly expiring Friday, and with AAPL trading up this morning to over $640 I kind of figured that these options would go out worthless by Friday. That wouldn’t be a big deal since this hypothetical position is being tracked with an entry price of a 5-cent credit. But I had hoped that we could at least watch how these hypothetical trades play out when the stock moves towards the fly instead of away from the fly. Well, with a quick reversal in the market (and AAPL) today a couple of things are potentially starting to play out.
The first is that the hypothetical put broken wing we’re tracking (610-605-595) is still in the mix and a move down toward the body of the fly over the next day or two could potentially move this trade to a hypothetical profit. So keep an eye on this to see how the hypothetical trade moves in value. If this trade reaches a point where the hypothetical profit reaches 20% of the risk, that’s a nice profit for a one-week trade. With a 5-cent credit entry, closing the trade with a 95-cent credit would generate roughly a hypothetical profit of 20% on the risk. As seen in the picture below, the low end of the expected stock range is still approximately around $605 by Friday.
The second thing that this turnaround has done is set up a hypothetical trade using the calls that also expire Friday. I’m tracking a hypothetical call broken wing butterfly using the 650-655-665 strikes with an entry price of a 5-cent credit. In both the call and put hypotheticals I’m tracking eight hypothetical spreads with each spread risking $495
And while the skew that I discussed yesterday (see the picture below) is still back towards the puts, where it normally resides, we know from the 4-part Broken Wing Butterfly series that these types of trades can potentially be traded regardless of one’s thought for market direction.
I’ll be back throughout the week to update both of these hypothetical trades to see what changes the market brings, including any major changes to skew.
Trade safe!
Greg Loehr
Optionsbuzz.com
Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commisions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.
No relevant positions.
