Please note: Trades discussed below are hypothetical and simulated for educational purposes only. Review the options risk disclosure.
The graph below compares the Bearish Butterfly vs. the S&P 500 index. If you had traded the rule-based Bearish Butterfly Strategy for the past 5 years, you could have outperformed the index by 288% — even though the market was bullish during most of this study.
And this even includes trading at half size since there are times you may be trading two different expiration cycles at the same time.
What’s most interesting is that the strategy only under-performed the index one year — which happened to be the year the index rose more than 37%.
When the index declined, the Bearish Butterfly strategy did best (no surprise there). When the market rose modestly or traded sideways, the strategy also did well.
No relevant positions. Options risk disclaimer.