A directional approach to trading butterfly spreads Mark Mosley mailmosley@yahoo.com

Chicago Board Options Exchange- Characteristics & Risks of Standardized Options https://www.theocc.com/components/docs/riskstoc.pdf U.S. Government Required Disclaimer: This information is presented for educational purposes only. All information shared is confidential and proprietary. No earnings claims have been made. Your success with this information presented is entirely dependent upon your actions. You are required to do your own research and due diligence. Mark Mosley is not a registered investment advisor and nothing herein shall be construed as a solicitation and / or recommendations to buy, sell or hold any financial instruments. Recognize that the purchase of, sale of, or giving of advice regarding foreign currencies, commodities, stocks, options or futures can only be performed by a licensed, registered or exempt person. Understand that Raleigh Durham Traders Meetup group, its owners, subsidiaries, employees, affiliates and agents do not solicit or execute trades or give investment advice, are not registered as brokers or advisers with any federal or state agency, and encourage consultation with a licensed representative or registered investment professional prior to making any particular investment or using any investment strategy. Stock and options trading has large potential rewards but also involves large potential risks, and that as an investor, you should only use and / or risk capital you are prepared to lose. This program is intended solely for the avocation, personal enrichment, and enjoyment of students. Your success depends on your unique skills, time commitment, and individual effort. Recognize that neither unique experiences, past performances, historical tests, nor included or accessible strategies, scans or patterns constitute recommendations or guarantee future results. You are solely responsible for the selection of your own stocks, currencies, options, commodities, futures contracts, strategies, and scans, and monitoring your brokerage account(s), the Programs and anything, including, without limitation, delays or outages of any type, which may adversely affect you. The education training program provided hereunder is not designed or intended to qualify students for employment.

Options coaching Now accepting students interested in one-on-one coaching, or assistance with setup and finer details of Think or Swim trading software. Information-email Mark Mosley- mailmosley@yahoo.com

Why Directional Butterflies? Diversity of strategy 80% slower moving strategies, example- Falde “net zero” 60-40-20 delta neutral approach My earlier presentation on this topic…https://www.youtube.com/watch?v=o2l41Iqy9EI&feature=youtu.be 20% faster moving strategies, example- Call Butterfly arranged as delta neutral or delta positive, or delta negative according to your bias

Evolution of a trade Sell a put, or a “short put” also “Naked Put” most basic bullish trade Sold 185 strike put for $4.20/ Aug 17

Bull Put spread- sell a put for income, buy a put for downside protection Sold 185 strike put for Aug 17 Bought 180 strike put, net credit of $1.20

Butterfly Spread- Bullish put spread + bearish put spread, creates profit zone

Facebook price chart as of July 2nd

Facebook call butterfly, with nearly delta neutral stance 7/2/18

What is “Delta Neutral?’ Bearish Neutral Bullish Delta is a measure of our directional risk Positive numbers mean we expect underlying to go up Negative means we expect underlying to go down A neutral delta hedges our bet either way

Delta considerations on trade entry Maybe a little positive or a little negative depending on our bias. Maybe FB gets to $220 before rolling over… Bottom of range about $192 Maybe going to $220 before rolling over ?

FB bullish variation Note positive delta Not much downside protection

FB bullish day step Maybe we have more downside comfort than originally thought….to about $197 good on upside to about $220

Choosing an underlying High Implied Volatility = High Options Prices IV percentile (Tastytrade) higher the better >50% IV skew (variation across strike prices within one expiration) IV term structure (variation across expirations, avoid earnings) Implied Volatility greater than Historic Volatility

Trade guidelines Days to Expiration (DTE) 45 to 70 days- longer term flattens t+0 and reduces risk Shorter term= more slope to t+0 line = more risk Longer term= flatter t+0 line= less risk Butterfly width - Some advantage to going narrower Note how t+0 line expands outside graph Calls or puts?

Managing and Exiting the trade A day to day decision process Best to maintain a flat t+0 line to minimize risk Daily check graph and delta/ theta ratio Exit quick if a trade gets into trouble A small loss is better than a big loss Look to exit with 20 to 15 DTE

Netflix recent price action Just eyeball upper and lower end of range, probably 385 to 435

NFLX Implied Volatility vs. Historic Vol Note how IV greater than HV

Lets try NFLX Risk $550 to make ? Notice small downside compared to potential upside

NFLX with10 day step lines Trade is profitable from ~ $380 to about $460 Upper breakeven Lower breakeven

NFLX with 50 point wings Similar range of coverage $893 for a 1 lot

Choosing an underlying (continued) CRM IV percentile is 31, not such a great setup Not the best risk/ reward here For a 5 lot, Risk $845 to make ?

CRM bad trade day step chart Notice poor Risk/ Reward setup

or help with Think or Swim please contact For private coaching, or help with Think or Swim please contact Mark Mosley mailmosley@yahoo.com