1. A directional approach to trading butterfly spreads
Mark Mosley

2. Chicago Board Options Exchange- Characteristics & Risks of Standardized Options
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3. 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- Mark Mosley-

4. Why Directional Butterflies? Diversity of strategy
80% slower moving strategies, example- Falde “net zero” delta neutral approach
My earlier presentation on this topic…
20% faster moving strategies, example- Call Butterfly arranged as delta neutral or delta positive, or delta negative according to your bias

5. 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

6. 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

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

8. Facebook price chart as of July 2nd

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

10. 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

11. 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 ?

12. FB bullish variation
Note positive delta
Not much downside protection

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

14. 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

15. 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?

16. 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

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

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

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

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

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

22. 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 ?

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

24. or help with Think or Swim please contact
For private coaching,
or help with Think or Swim
please contact
Mark Mosley